With crude oil prices rising to levels not seen in three years, local analysts say not only won’t Louisiana see any short-term benefits but they also warn prices could soon drop if the market makes a correction.
Oil prices are important to Louisiana, especially in the Lafayette and Houma areas—suffering through the nation’s third- and second-worst economies, respectively, last year—but the likelihood of recently rising prices remaining high is not good, says economist Loren Scott.
“We have to have oil prices at this level if we want the Gulf of Mexico to come back,” Scott says.
David Dismukes, executive director of LSU’s Center for Energy Studies, agrees, but does say the region could benefit if natural gas prices stay relatively flat in the face of rising crude oil prices.
“Our economy is more leveraged towards processing, refining and reforming hydrocarbons than it is in improving them,” Dismukes says.
While Louisiana isn’t expected to see any immediate benefit, the rising price of crude is sparking increased drilling activity in neighboring Texas, which is more active in shale drilling. There are few shale plays in Louisiana, though experts say there’s future drilling potential in Central Louisiana with the state’s portion of the Austin Chalk formation.
While oil prices have mostly been at or above $60 since the new year, recent barrel prices have been the highest the industry’s seen since 2015. WTI Crude opened at $68.61 today while Brent opened at $74.65, though both saw decreases following the U.S. Energy Information Administration’s report Monday that oil production in February was record-breaking at 10.264 million barrels a day.
While the prices are generally good signs for the oil and gas industry that continues to recover after 2014’s downturn, the prices won’t be good news if they’re not sustainable, Dismukes says.
Prices for crude oil are also pushing up gasoline prices, and other experts are predicting the summer will see the most expensive gas since 2014.
The catalyst behind the rise in oil is rising geopolitical tensions encouraged by a looming May 12 deadline, by which President Donald Trump is expected to announce whether he will renew economic sanctions on Iran or stick with the current deal that limits the Middle Eastern country’s nuclear energy program, a deal he has publicly denounced.
How the tensions play out will determine how sustainable the prices are, says Dismukes who says oil prices could see a $5-plus market correction.
BP’s chief financial officer also warned of a market correction on CNBC Tuesday morning, calling current oil prices “frothy.”