High oil prices not cause for celebration at the Capitol

As oil prices top $100 a barrel, legislators no doubt get a little excited, hoping that their budget-trimming job just got a little easier. But rising oil prices don’t magically fix the budget. While a $1 rise in the oil price forecast generally is worth $12 million to $14 million to the state, the budget isn’t as dependent on oil as it once was. And as Legislative Fiscal Office Chief Economist Greg Albrecht points out, the Revenue Estimating Conference has to be cautious not to overreact to spikes in oil prices, especially since current prices seem to be driven by fears about the political turmoil in the Middle East, not supply and demand. Albrecht is recommending an estimate of $81.15 a barrel, up nearly $9 from the current official forecast, although the official estimate hasn’t been changed yet. “[The Revenue Estimating Conference] doesn’t go out to the edge,” Albrecht says. “If prices are $105, we are not going to forecast $105. … We are once again steadily building into our forecast higher and higher oil prices.” —David Jacobs