Wyoming saw a significant drop in its forecasted revenues this quarter, a decrease reflecting an uncertain time for oil and gas markets and short-term investment prospects.
Wyoming has continued to see healthy improvement in sales tax revenues from the retail and mining sectors, but much of the activity is tied to increases in oil and gas production, and job growth, with an increase of just 1 percent since October, has remained minimal.
Combined, the Consensus Revenue Estimating Group (CREG) has reduced its revenue estimates for 2019-2020 by $125.1 million, with a reduction of $145.4 million anticipated for 2021-2022, according to the group’s quarterly revenue report released Monday. The reduction is spread across the state’s revenue estimates for Wyoming’s General Fund, its Budget Reserve Account, the Permanent Wyoming Mineral Trust Fund, the School Foundation Program, the School Capital Construction Account and the state’s School Foundation Program Reserve Account.
After optimistic prospects for oil and gas in October, the January CREG report makes significant modifications to its estimates for the coming years, with substantial decreases in oil prices over the next few years.
In 2019, CREG decreased the projection for Wyoming oil prices by $15 per barrel, with additional reductions of $10 per barrel in 2020 and $5 per barrel in 2021. Taken into account, this would reduce the total 2019-2020 forecast for severance tax collections by $95.7 million — an additional $48.9 million in 2021.
The General Fund and Budget Reserve account will see reduced revenues of $16.3 million in 2019 and $44.5 million for 2020, while Federal Mineral Royalties are expected to decrease $49.5 million in 2019-2020 and $25.2 million in 2021-2022. This amounts to a more than $67.3 million decrease for the 2019-2020 biennium compared to the October report.
The decrease, CREG explains in its report, is largely due to an excess of supply versus global demand as well as lower than anticipated effects of new U.S. sanctions on Iran. Imposed in November, the sanctions have been ineffective due to waivers granted to nations like China and India, which continue to purchase oil from the country.
However these numbers, the CREG notes, are conservative compared to the expectations of most analysts.
“Looking forward, there is a great deal of uncertainty in the oil markets,” the report notes. “As noted by the head of oil markets at the International Energy Agency, forecasting trends in 2019 is ‘even more hazardous than usual.’”
CREG added that United States oil shale production, however, continues to grow, and new OPEC supply agreements could begin to limit future surpluses worldwide, though there are general concerns about economic growth worldwide as well as geopolitical risks in the Middle East that could change oil and gas prospects on a dime.
“Broadly speaking, government and investment analysts’ forecasts are currently exceeding the oil prices predicted by futures markets,” CREG notes.
One bright spot for the state was an increase in sales and use taxes, which came in higher than October’s projections.
According to the report, 2018 sales and use tax collections exceeded the January 2018 CREG forecast by about $38 million, causing CREG to boost its revenue projections for sales and use tax collections by more than $14.5 million from its October forecast. Much of this, the report noted, is directly due to activity in the oil and gas sector.
However, workforce continues to be a problem. Wyoming is currently experiencing job growth of less than 1 percent and has seen only modest personal income growth while declines in both labor force and population continue on. In addition, the report notes that the number of drilling rigs have failed to increase — meaning fewer jobs — due to more efficient drilling methods.