4-20-16 Murkowski Scores for Alaska and U.S. – PLUS – Does Alaska’s Legislature Have the Moral High Ground From Which To Seek “More Revenue” Before Serious “Cutting”?

Oil Price Uncertainty And Alaska’s Uncertain Future

Does Alaska’s legislature have the moral high ground from which to argue private sector revenue increases until it has cut government expenses almost to the bone.

by

Dave Harbour

Our respected Mid Atlantic energy analyst friend (i.e. he prefers to remain anonymous), makes a case (below) that we believe argues for Alaska’s leaders to not count on oil price recovery soon  (Note: the same could be said of Alberta whose economic distress is similar in principle to Alaska’s).

Sure, prices could always recover, and probably will … someday.  But Alaska doesn’t have the ability to hold out for a very distant “someday”.  Therefore, we remain in the logical camp of those who oppose taxing Alaska’s private sector in order to avoid cutting excesses of the public sector.   Keeping the lavishly treated public sector whole in difficult times, at the expense of the private families who make up the bulk of the population, cannot end well.  Outmigration is sure to increase.

Alaska’s legislature should not create one dime’s worth of ‘new revenue’ until it has demonstrably and responsibly cut Alaska state spending — almost to the bone.   Until then, it does not have the moral high ground from which to argue against the best interest of their constituents and the economy upon which they depend.  -dh

Notes from our Mid Atlantic energy analyst friend:

One of the cardinal rules of analysis is “Never try to apply technical analysis and fundamental analysis at the same point in time to the same market conditions. Life is not that neat, and neither is analysis”. 

The WTI market broke through the 200-day moving average last week. Today it closed above the $42 resistance level by at least the required three blocks (the way our great mentor, Dick Pracko, taught us), at $42.47. All that is needed in another consecutive day above that level, to indicate a technical breakthrough. But the largest part of the news on the various inputs into the crude oil market have been skeptical, to state it mildly. The Doha talks were DOA before the private jets arrived. Iran is planning to increase production. The US plummeting rig count has done little to curb production. Global economic forecasts keep getting shaved by multiple tenths of a percent. So why is oil rallying?

It often takes awhile to get the minor inputs pullled together. The article below shows that there is really a smaller amount of excess capacity than observers believe.  The Saudis have largely served as the swing producer for the globe for many years; now they are largely producing flat-out. But the story below shows that the supply system for crude oil, with so many moving parts, is subject to a wake-up call when just a few of them go out at the same time. At such an instance, the commodity price can find itself hostage to the “teeter-totter effect” (a relatively small imbalance change between supply and demand can have an outsized impact on the commodity price).

It is our belief that the technicians affecting pricing decisions have been allocating probabilities to a number of the mentioned items below, and willing to bid up the price. By themselves they might not have been large enough to attract attention to change conventional wisdom, but the people who bet their money on price changes track them.

BOTTOM LINE: We have repeatedly stated we will not make any price target predictions, since “success” will be only transitory in an increasingly volatile market. But we will point out that our “increasing volatility” prediction is looking better and better. And volatility is generally bullish in the interim term (18 months to three years) for the crude oil market.