Less than six weeks after world oil prices collapsed into negative territory, headlines this morning proclaimed West Texas Intermediate crude, the U.S. oil benchmark, is on track for its best month on record after gaining more than 70% in May.
Is the crisis, which had the energy sector in panic mode just a month ago and gave rise locally to the justification for generous industry tax breaks, over so soon?
Not really, according to industry experts, who note that even at today’s price of around $33 per barrel, WTI is still only half its recent high in January of more than $65.
“We’re pretty much staying south of $40 for the foreseeable future,” says David Dismukes, executive director of the LSU Center for Energy Studies. “You have to get out six or seven years before it’ll be in the $50 range again. The new normal will be below $40.”
Still, as the economy has gradually reopened across the country in recent weeks, demand for petroleum products like gasoline has risen, at least partially alleviating the problem that was caused by a worldwide economic shutdown at a time when Russia and Saudi Arabia were dumping crude on the market.
Some statistics suggest demand is even stronger than had been predicted for the early stages of the economic reopening, Dismukes says. Analysts theorize this is because as people venture back out, those who have their own vehicle are opting to drive rather than using mass transit.
“Plus, a lot of people are still using delivery services right now,” he says. “So there is just a lot of driving going on.”
Factories are also powering back up, and if prices nudge up to the $35-per-barrel range, a threshold point for U.S. producers, Dismukes predicts a relative increase in upstream activity among U.S. producers.
But downstream, the refinery and petrochemical sector, which has fueled much of the economic growth in Louisiana in recent years, is not expected to rebound any time soon, and the demand of recent weeks is still not enough to make up for the overall condition of the economy and the glut of available inventory.
“I’m real worried about refining and petrochem,” Dismukes says. “That’s where you’ve seen most of the capital expenditures, and LNG has really taken it on the chin.”
