A rig in the Pikka unit, where oil companies Armstrong Oil & Gas and Repsol say they’ve found 1.2 billion barrels of oil, on the North Slope of Alaska west of Prudhoe Bay in 2019. (Photo courtesy Armstrong Oil & Gas)

ANCHORAGE, Alaska (AP) — A drop in global oil prices will likely add $300 million to Alaska’s current year budget deficit, state officials said.

A state Legislative Finance Division official told lawmakers the state could experience a $600 million revenue reduction in the 2021 fiscal year starting July 1, The Alaska Journal of Commerce reported Friday.

Oil price forecasts in the range of $60 per barrel now appear optimistic, officials said.

Prices began falling in early February as traders reacted to lower demand forecasts from China due to the country’s reaction to the outbreak of the COVID-19 virus.

Alaska North Slope crude sold for $33.47 per barrel Thursday, the state Department of Revenue said.

If Alaska oil prices average $40 per barrel for the rest of the 2020 fiscal year, the yearly average will be about $55 per barrel, or about 13% below the fall forecast price.

Revenue officials originally estimated an average price of $59 per barrel for Alaska oil in fiscal 2021, meaning prices in the range of $40 per barrel would be more than 30% less than what lawmakers once presumed they could use to budget.

Legislative Finance Director Pat Pitney told House Finance Committee members last week that it would be irresponsible to continue assuming projections made in the Fall 2019 Revenue Sources Book will hold given the economic disruptions of the past few weeks.

“There’s futures trading at $40 per barrel and that’s as good a predictor as anything to say what it’s going to be,” Pitney said.

The revenue department typically provides legislators an update in March to its annual fall state revenue forecast. Department officials said the sudden volatility of oil and financial markets caused them to temporarily put that on hold.

The most recent Legislative Finance Division projections put Alaska’s final 2020 fiscal year deficit around $930 million.