Are high oil prices, on balance, good or bad for the state? That’s a complex question without an easy answer.
There’s certainly an upside when it comes to royalties and severance tax collections, notes Stephen Barnes, the UL Lafayette economist who serves on the state’s Revenue Estimating Conference. Next year’s forecast projects about $525 million will be collected, which is less than 5% of total revenue, he says.
But high oil prices also mean drivers pay higher prices at the pump, and Louisiana’s industries pay more for energy. For example, agriculture production costs could go up by as much as 40% this year, depending on the crop, the LSU AgCenter says.
Fortunately for Louisiana’s petrochemical sector, natural gas prices aren’t as closely correlated with oil as they used to be. As the crisis in Ukraine heated up in recent months, the price of oil spiked by about 30%, but natural gas went up only about 5.5%, Barnes says. That difference could provide an edge for domestic manufacturers that use natural gas versus foreign competitors that rely on oil.
High gas prices could have a negative impact on tourism, and broader inflation driven partly by energy prices could affect retail spending, Barnes adds.
Current state budget projections assume $68.62 per barrel for oil this fiscal year and $64.48 for the year that begins July 1. Barnes expects the REC will meet at some point during the legislative session and likely will adjust those numbers.
Revenue projections probably won’t change much for this fiscal year, since it’s almost over, and state economists generally are conservative in setting oil price expectations. The oil futures market suggests the current price spike will level off, but next year’s forecast might be raised by “a couple hundred million dollars,” Barnes says.
Oil prices have fallen over the past two weeks but remain above $100 a barrel.