As the Alaska Legislature approaches the final stretch of budget negotiations, global oil market dynamics cast a long shadow over fiscal deliberations. With just four days remaining in the session, the latest report from the International Energy Agency offers a mixed outlook for Alaska’s state budget.
The price of Alaska North Slope crude oil has dropped from approximately $89 per barrel in April, 2024 to under $68 per barrel by April of this year. The $21 per barrel decrease is a 24% drop.
According to the IEA’s May 2025 report, global oil demand growth is expected to slow even more in the months ahead. After rising by 990,000 barrels per day in the first quarter of 2025, demand is forecast to increase by just 650,000 barrels per day for the remainder of the year.
The moderation is attributed to a combination of macroeconomic headwinds and record electric vehicle sales that cut into traditional fuel use, according to the IEA. Demand growth is projected to average 740,000 barrels per day in 2025 and 760,000 in 2026.
The flattening of demand comes at a time when global supply is set to expand.
World oil supply is forecast to rise by 1.6 million barrels per day, reaching 104.6 million barrels per day in 2025, and by an additional 970,000 barrels per day in 2026. Non-OPEC+ producers are expected to account for most of this increase, even as US. light tight oil production slows amid capital expenditure cutbacks by independent producers. The IEA has downgraded US LTO growth by 40,000 barrels per day for 2025 and 190,000 per day for 2026, due to reduced drilling activity.
OPEC+ has also surprised markets by moving up production increases that were originally scheduled for later. The bloc announced a second consecutive monthly output hike in early May, adding 411,000 for June. Despite some overproduction by member countries, the oil bloc is on track to contribute 310,000 in additional supply this year and another 150,000 in 2026.
The supply-demand imbalance is creating volatility in oil prices. Benchmark Brent crude fell by $14 per barrel in April to a four-year low of just above $60 before rebounding slightly to around $66 by mid-May. Trade tensions between the United States and China initially dragged prices down, although temporary trade agreements have since stabilized the market.
These trends have implications for budget negotiators in Juneau, where petroleum revenues remain a cornerstone of the state budget.
Alaska’s oil royalties are estimated at $800 million to $1 billion for FY 2025, accounting for about 11% to 14% of the Undesignated General Fund budget. With production taxes, property taxes and corporate income taxes, oil contributes about $2.38-$3 billion dollars per year to the Alaska state operating budget, (about 33-44% of last year’s UGF budget).
The price of Alaska North Slope oil is now $67.78 and not expected to rise.
The conference committee on HB 53 (operating budget) and HB 55 (mental health budget) meet on Sunday at 1 pm in the Capitol to negotiate the final package that will be sent to Gov. Mike Dunleavy.
The budget passed by the House included:
- $6.167 billion in Unrestricted General Funds, while last year’s budget had $5.0 billion in UGF spending
- $1.004 billion in Designated General Funds
- $1.976 billion from other state funds
- $3.832 billion in federal receipts
- Total: $12.979 billion
On May 8, the Alaska Senate passed an operating budget of approximately $6.25 billion. The conference committee is in charge of negotiating the differences between the budgets from the House and Senate.
Watch Friday’s conference committee negotiations at this Gavel Alaska link. Today’s conference committee video can also be watched at Gavel Alaska.