For the first time in more than three years, all oil-producing states are projected to have economic growth in 2019, according to S&P Global Ratings.
Alaska’s return to growth means there are no longer any energy states in the minus column, analysts said.
“In 2019, we expect economic growth to continue for all states, though Alaska will remain among the 10 slowest-expanding, while Texas, North Dakota, and Wyoming could emerge at the top,” the analytical team led by Timothy Little wrote.
Alaska’s proposed fiscal 2020 budget tends toward austerity and limits on reserve use compared with prior years, analysts said. Proposed general fund revenue totals $4.7 billion, which includes $1.7 billion or 36% of revenue from petroleum-related income.
“We expect revenue to be stable, because the proposal continues using the state's vast Earnings Reserve Account ($16.1 billion as of June 30, 2018) as revenue,” analysts wrote. “Unlike prior budgets, there is no planned use of the Constitutional Budget Reserve Fund to mitigate the deficit.”
In Texas, oil exploration has been on the upswing since mid-2016 with rig counts surging to 520 in early January 2018 from 173 in May 2016, S&P said.
Wyoming and North Dakota have posted strong gains in the natural resources and mining sector, analysts noted. That has fueled improvement in construction, transportation and warehousing, and manufacturing, they said.
The West Texas Intermediate price per barrel averaged $65.19 in 2018 compared with $50.87 in 2017. Over the past year, prices increased steadily to $76.41 in October before declining over the fourth quarter.
The trend's reversal contributed to S&P Global Ratings lowering its average annual price assumptions for Brent and WTI crude oil for 2019 by $10 per barrel and for 2020 by $5 per barrel.
With its more diverse economy, Texas weathered the oil with very little effect. The Lone Star State’s constitutionally required transfer of severance taxes to the economic stabilization and state highway funds limits its direct reliance on these revenue sources for operations, analysts said.
Oil-related revenue makes up a small portion of Oklahoma's operating revenue, but a prolonged slump in oil prices can disrupt the economy and negatively affect income and sales taxes, S&P said.
“Nonetheless, positive revenue performance is more closely tied to improved net income and sales taxes than a rebound in gross production taxes,” they wrote. “Positive revenue performance in fiscal 2019 should facilitate an expanded revenue base and a balanced budget. The executive budget proposes adding to Oklahoma's rainy day reserves, replenishing about $382 million to close fiscal 2019, which compares favorably with $70 million in reserves at fiscal year-end 2018.”
Louisiana continues to recover from the economic contraction of 0.8% in 2017 and 1.3% in 2016, analysts said. Following flat fourth-quarter growth in 2017, the state enjoyed 4.7% growth in first-quarter 2018 and followed it up at 4.3% in the second quarter, according to the Bureau of Economic Analysis.
