DALLAS - Among the 10 states that account for nearly 78% of U.S. oil production, those with the most diverse economies are expected to fare better as prices continue to drop, according to Fitch Ratings.
In trading on Monday, West Texas Intermediate crude was down about 3% to around $56 per barrel. That represents nearly a 48% decline from the June high of more than $107 per barrel.
"Alaska, North Dakota and Wyoming will feel the pinch much more acutely than states like Texas, California or Oklahoma, because tax revenues from oil production in the former states makes up disparately large proportions of total revenue collections," Fitch analyst Marcy Block noted in a Dec. 15 report.
"Texas has been through the ups and downs of crude prices and has, accordingly, developed a vibrant and diversified economy away from oil."
Alaska is the most heavily reliant on oil revenues, where 78% of the states total revenues are attributed to oil.
"Each of these states, though, is a strongly rated credit," Block wrote.
According to the US Energy Information Administration, 10 states account for nearly 78% of all US monthly oil production. Production is even more concentrated at the top, with the top 5 states accounting for nearly 66%, while Texas alone produces over a third of all U.S. oil.
As production is cut and new wells are left undrilled, jobs and individuals' discretionary income will likely fall in tandem, according to a Dec. 12 Bank of America Merrill Lynch report.
Local governments may be forced to find alternative sources of funds to pay for government services that were otherwise funded with revenues associated with that oil production.
"This will likely be felt in cities and counties where oil production is the dominant, if not only, industry," wrote Phil Fischer, head of municipals research at BAML. "As these revenue streams begin to decline, issuers' often-competing responsibility between essential government services and debt service becomes that much more strained."
