BISMARCK – With budget cuts for state agencies looming in the background, an advisory group took a conservative approach Friday in predicting how slumping oil prices, production and drilling activity will affect state revenues over the next 18 months.

“I don’t think anybody I work for is real bullish on what oil’s going to do,” said Ron Ness, president of the North Dakota Petroleum Council.

Ness and other members of the state’s Advisory Council on Revenue Forecasting met at the Capitol to refine the assumptions that Moody’s Analytics was proposing for a new revenue forecast ordered by Office of Management and Budget Director Pam Sharp last month.

The new forecast is expected to trigger automatic budget cuts of 2.5 percent for most state agencies and force the state to dip into its $572 million Budget Stabilization Fund to cover the remaining revenue shortfall, Sharp said.

“It’s obvious, by looking at this, that that will happen,” she said.

Some GOP lawmakers have already called for deeper budget cuts. State tax revenues for the first six months of the biennium that began July 1 were $215 million below the forecast that lawmakers had when they approved the state’s two-year budget in April.

For the new forecast, Moody’s proposed that the benchmark price of West Texas Intermediate crude oil would increase from $35 a barrel during the current quarter to $48.84 a barrel by the end of June 2017

But advisory group members felt that was too high and settled on an increase from $30 a barrel to $43 a barrel. The WTI price was at about $31.50 a barrel when the meeting started.

The previous forecast assumed oil production would hold at 1.1 million barrels a day through the two-year budget cycle, but the advisory group lowered that, too, assuming that production will drop to 1 million barrels a day by year’s end and 900,000 barrels a day by the end of the biennium. November production, the latest month available, was nearly 1.18 million barrels a day.

“I would hope we’d be real cautious,” said House Appropriations Committee chairman Jeff Delzer, R-Underwood. “It’s always easier … to deal with more money coming in than the forecast was, than the other way around.”

The group also agreed on a lower assumption for the average number of active drilling rigs, settling on 50 rigs during both fiscal years. Moody’s proposed assumption was 55 rigs in fiscal year 2016 and 60 rigs in fiscal year 2017.

Sharp said she hopes to have the new revenue forecast by Feb. 1.

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