As gas prices drop for record 16th straight week, state budgets scramble

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Gasoline prices set a record Tuesday, dropping for the 16th consecutive week.

That’s the longest streak of price declines ever recorded by the U.S. Energy Information Administration, which compiles the data of retail prices for all grades and all formulations across the country.

“Gasoline demand in the U.S. is soaring, probably because it’s so cheap,” said Joseph Dancy, investment partner at the Dallas-based energy firm LSGI Advisors Inc. “The basic rule of thumb is for every dollar of crude oil decline you’ll get a 2-to-3 cent decline in gasoline prices.”

The gas price released Tuesday was $2.16 a gallon — a healthy drop of 7 cents from the previous week. The last time gasoline was this low was May 2009.

Crashing oil prices around the globe have spurred the drop in gas prices and that has led to more money in the pockets of American drivers.

EIA administrators estimate that will save the average U.S. household around $750 this year. The Economist magazine reported the typical American motorist spends about $3,000 a year at the pump and estimates the savings is roughly the equivalent of a 2 percent pay raise.

But the news isn’t all good — especially for states that rely heavily on energy revenue to help support their budgets.

“The increase in usage of gasoline is not going to make up for the decline in crude oil severance taxes that they’re going to lose,” Dancy told in a phone interview. “Using just a back-of-the-envelope calculation, I can tell you, that’s a no-brainer.”

For example, a recent study showed New Mexico gets 31.5 percent of its general fund revenue from taxes, royalties and fees from the oil and natural gas industry.

Budget directors in states such as Texas and North Dakota have been scrambling, adjusting their projections downward as the price of oil has slipped from around $100 a barrel last summer to under $50 at the start of this week.

Energy-rich Oklahoma’s annual $7 billion budget was modeled on the presumption of oil averaging $86.99 a barrel, but officials had to adjust that down to $59.97 in late December. What’s more, a spokesman for the Oklahoma Office of Management and Enterprise Services told Tuesday the figure will likely be adjusted down again next month.

As legislative sessions convene in energy-producing states, lawmakers will almost certainly have to tighten their belts.

Oil and mineral-related revenue makes up a whopping 87 percent share of Alaska’s budget and 31 percent of Wyoming’s.

In the wake of falling gas prices, there have been rumblings in statehouses across the country and on Capitol Hill to increase gasoline taxes.

“It would be controversial, but when the price of oil and the price of gasoline decline so quickly, it’s much easier to sneak in a 5 cents a gallon additional tax on the motorist to pay for infrastructure improvements and road upgrades when gasoline is at $4 a gallon,” said Dancy, who is also an adjunct professor and lecturer at Southern Methodist University.

In the meantime, it’s hard to predict where oil prices are heading. Few experts predicted the dramatic drop in the first place and energy analysts are all over the map on what happens next.

Some see prices going back up to $100 a barrel while in recent days the oil minister of Iran — a member of Organization of Petroleum Exporting Countries — said the industry could ride out oil prices dropping to $25 a barrel and a former Shell Oil president predicted oil could drop to $5 a barrel by the end of the decade.

“The forecast going forward for crude oil prices run the gamut,” Dancy said. “If your main cost is pretty much unforecastable by anybody with a real reliable track record, it’s difficult to say whether low prices will continue in the future and how far in the future.”