Dismukes: Higher oil prices likely to have muted impact on Louisiana

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Oil prices last week hit multiyear highs above $70 a barrel, punctuating a global economic reawakening that has raised the prices of a broad range of commodities. But that doesn’t mean Louisiana should expect more drilling activity any time soon, according to one local energy expert.

After OPEC and its allies forecast higher demand and boosted output, Brent crude, the international energy benchmark, rose 1.3% to $70.25 a barrel, notching its highest close since May 2019. Meanwhile, West Texas Intermediate futures, the key U.S. gauge, gained 2.1% to $67.72 a barrel to close at its highest level since June 2018.

Higher oil prices tend to create more opportunities for drilling, which is generally a good thing for Louisiana, says David Dismukes, executive director of the LSU Center for Energy Studies. However, a spate of recent sociopolitical and economic events will likely complicate matters for the U.S., leading Dismukes to predict that hardly any, if any, new drilling activity will take place across the country—including Louisiana—in the near future.

“I wouldn’t be jumping up and down and expecting a huge employment response,” Dismukes says, noting the total active U.S. rig count is around 457. “Oil and gas companies are still licking their wounds from COVID-19 and their precarious financial situations before the pandemic.”

Since the pandemic, many companies have incurred significant debt, which they’re paying off with much of their production revenues, Dismukes says.

What’s more, Biden’s indefinite moratorium on new oil and gas leases on federal lands and waters—together with ExxonMobil’s recent boardroom shake-up and a Dutch court’s landmark ruling against Royal Dutch Shell—has created a high degree of uncertainty among companies.

These considerations have caused oil and gas producers to “press pause” on major decisions, Dismukes says, with some questioning whether the market is slightly oversold.

Dismukes doesn’t think it is, but acknowledges their concerns as valid, saying much of the future direction of prices will depend on demand in Asia.

“People are rethinking, in very short order, what they do with their capital,” he says. “Now, it’s not quite as much of a no-brainer as it might’ve been years ago.”