OPEC and Alaska.

• Author: Sullivan, Patty
• Position: Oil price hike of the Organization of Petroleum Exporting Countries - Industry Overview

While you may have felt the pinch at the pump when gasoline prices leapt 20 cents a gallon in April, not everyone felt your pain. State oil analysts were more likely to smile. That's because they are the fiscal planners who must present solutions for the ill-balanced state budget, and oil is where they get their friendly numbers.

The price at the pump jumped across the nation because the Organization of Petroleum Exporting Countries, (OPEC), the oil cartel of 11 nations, agreed to cut oil production in February. That tighter market for oil jacked up the price worldwide. Alaska North Slope crude went from a scary $8.63 a barrel in December to nearly double that after OPEC met: more than $17 by the end of June.

"All oil producers in the world are dependent on OPEC," says the chief oil economist in the state, Chuck Logsdon.

"Oil is an internationally traded commodity. In Alaska we don't have much say on the price we get. It's determined on the world market; OPEC controls it. Their behavior is a spin-off for every other oil-producing country."

Good Times, Bad Times

If there were no OPEC, if open competition existed, then Alaska's oil would run at, perhaps, $10 a barrel, Logsdon says.

"The problem with $10 a barrel (oil) is it's hard to attract new investment," he adds. "At $10 a barrel you'd see production decline."

It also means that the State of Alaska would never have been blessed by the over $20 a barrel it got in December 1997.

"We were able to balance the budget in fiscal year '97 because of oil production," Logsdon says.

Since the pipeline opened in 1977, the price for oil has spiked and plummeted through several periods, the result of OPEC decisions, says Logsdon. The most memorable took place in 1986 when oil companies reaped $30 a barrel, then prices suddenly plunged to below $10 a barrel. As a result, the construction boom fizzled, and Alaska sank into a deep recession. Again in 1988, oil fell from $18 to $10 a barrel. Both times because OPEC increased production and flooded the market.

"OPEC as an organization is not perfect," Logsdon says.

Getting its members to agree and keep their agreements is difficult. They are culturally, religiously, and politically very different. The governments of the member countries range from the democracy of Venezuela, to the monarchy of Saudi Arabia, to the theocracy of Iran. They run the gamut of religions from Christianity to Islamic. They reside in Africa, Indonesia, Latin America and the Middle...