Fuel prices drop as oil falls to six-year low

Fuel prices drop as oil falls to six-year low

The most recent global decline in oil prices – reducing crude prices to a six-year low this week – helped pull down diesel and gasoline prices in the U.S., according to data tracked by the Energy Information Administration (EIA).

Yet several states – including Texas, North Dakota, and Oklahoma – are finding their budgets squeezed as the collapse of global crude prices is reducing their oil tax revenues, the agency noted.

The national average retail pump price for diesel decreased 2.7 cents this week to $2.917 per gallon, EIA said, which is $1.086 per gallon cheaper when compared to the same week in 2014.

Diesel declined in every region of the country except for the Rocky Mountains, which witnessed a 1.1 cent increase to $2.812 per gallon this week, the agency reported.

Diesel remains above the $3-per-gallon mark in five areas this week, according to the agency’s numbers:

  • The East Coast at $3.082, down 2.3 cents from last week;
  • New England at $3.270, down 6.2 cents (which is also the largest one-week regional decline in diesel prices);
  • The Central Atlantic at $3.311, down 2.2 cents;
  • The West Coast at $3.069, down 3.2 cents (though that shifts to $2.894 following a 3.3 cent decline with California removed from the mix);
  • California at $3.202, down 3.1 cents.

The national average retail pump price for gasoline dropped 3.4 cents this week to $2.453, EIA said, which is $1.094 cheaper per gallon compared to the same week in 2014.

Gasoline prices only increased in the Rocky Mountain region this week, climbing 5.6 cents to $2.288 per gallon, the agency noted.

By contrast, gasoline prices fell in every other area of the country with the West Coast sporting the biggest drop at 6.6 cents to $3.116 per gallon, though that shifts to a 3.1 cent dip to $2.703 per gallon with California’s prices removed from the mix.

However, EIA pointed out that the decline in spot oil prices in the last half of 2014 and first month of 2015 is reducing oil and natural gas production tax revenues in some of the largest oil- and natural gas-producing states across the country.

Texas, North Dakota, Alaska, and Oklahoma are four of the five top oil- and natural gas-producing states in the nation, deriving a significant share of their unrestricted operating revenues from taxes on oil and natural gas production. Thus the recent crash in oil prices is hurting their budgets, according to the agency’s data:

  • Texas collected $583 million in tax receipts from oil and natural gas production in August 2014, but tax revenue declined by 40% to $352 million in January 2015, based on data from the state's comptroller. EIA estimates crude oil and lease condensate production in Texas also increased through December, growing from 88 million barrels to 107 million barrels from January to December 2014.
  • North Dakota tax revenue from oil and natural gas production decreased from $323 million in August 2014 to $254 million in January 2015, a 21% reduction. Monthly production has continued to increase through December even as prices declined, according to the latest production data.
  • Alaska relies on revenue from crude oil production for 90% of its operating budget. The state's 2015 revenue projections assumed oil prices at $105 per barrel. According to initial oil and natural gas production tax receipts received by the Alaska Tax Accounting System, monthly oil and gas production tax revenue in August 2014 was $108 million. In January 2015, revenue from these taxes was $26 million. The oil and natural gas production tax represents one of the four primary components of petroleum revenue for the state, with the others being corporate income taxes, property taxes, and royalties collected by the Alaska Permanent Fund Corporation.
  • Oklahoma collected $62 million in funds from production oil and natural gas taxes in August 2014. This value declined to $43 million in January 2015, a drop of roughly 30%, based on information from the Oklahoma Tax Commission. Oklahoma's production was relatively flat during this period.

Although California produces more oil than both Alaska and Oklahoma, EIA said its economy is much larger than those other four states thus making it relatively less affected by changes in oil and natural gas prices and production rates.

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