On November 30, the Organization of the Petroleum Exporting Countries (OPEC) agreed to “reduce oil output by about 1.2 million barrels a day by January.” The agreement to cut production, meant to address falling oil prices in the world market, had an immediate effect, with the prices of oil and energy company shares increasing globally. However, ratings agency Fitch continues to forecast the same prices per barrel between 2017 and 2019. In the United States, officials in jurisdictions with budgets driven largely by taxes or other revenues from energy resources expressed initial excitement about the OPEC announcement—but sustained low prices for oil, natural gas, and coal may continue to put a strain on state and local budgets that depend such revenue.
Research by RFF Senior Research Associate Daniel Raimi and CEO and President Richard Newell suggests a similar basis for caution. They find that some states “use the large majority of revenues to support state current expenditures. Because of the volatility of oil and gas prices and their associated revenue streams, this approach has the potential to generate windfalls when commodity prices are high and lead to budgeting challenges when prices fall.” In a new blog post, Raimi takes a look at these challenges in west Texas, noting that “oil and gas properties make up the vast majority of the tax base” in the Permian basin region. Despite growing oil and natural gas production in the Permian in recent years, low oil prices have led to decreased local tax revenues, writes Raimi, and “most of the county governments we visited have seen large declines in their budgets. . . . As a result, a number of counties are trimming staff and expenses while demand for services remains high.”
RFF on the Issues connects today’s pressing news with related research and expertise at RFF.
The views expressed in RFF blog posts are those of the authors and should not be attributed to Resources for the Future.
