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Oil prices, Middle East tensions and Louisiana

Oil rigs in the Gulf of Mexico
Oil rigs in the Gulf of Mexico(Source: WVUE)
Published: Feb. 26, 2021 at 8:28 PM CST
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NEW ORLEANS, La. (WVUE) - The U.S is much more energy independent still crude oil accounts for the largest share of America’s energy imports, according to U.S. Energy Information Administration.

And the increasing tensions in the Middle East could impact oil prices and help Louisiana in the process.

Oil prices impact costs at gasoline pumps.

Pierre Conner is Executive Director of Tulane’s Energy Institute.

“About a half of a barrel of oil goes into gasoline, gasoline prices, you know, about half of that is from crude oil, the other is taxes, refining, marketing, etc.,” said Conner.

And the U.S. airstrike in Syria targeting facilities used by Iran-backed militias is prompting questions about the possible impact on oil prices in coming days.

Mike Moncla is President of the Louisiana Oil and Gas Association, also called LOGA.

“Generally, when a conflict of that sort happens we will get a little bump in the oil price, we haven’t seen that today, but, you know, there will be a bump normally,” said Moncla.

So far there has been no retaliation for the airstrike but, in terms of oil, the Straits of Hormuz, a narrow waterway through which 21 million barrels of oil pass daily.

Conner said the U.S. is in much better shape in terms of producing its own oil.

“Yes, the Straits of Hormuz are the most important choke-point, if you will, for petroleum out of the Middle East but given the position that we find ourselves in, in the United States, where we’re one of the, we’re the top producer in the world and while OPEC has spare capacity, frankly we have spare capacity,” he said.

The COVID-19 pandemic depressed demand but late last year oil prices began rebounding. Currently, a barrel of oil is a little over $60. “Since November 2 the prices have come up $30 a barrel, so that’s good for workers in Louisiana for sure,” said Moncla.

“If this thing gets drawn out further you could see increased oil prices than what they already are.” And higher oil prices would impact consumers who buy fuel.

“Pretty much, yes,” said Moncla.

“The drivers of pricing are very inelastic when it comes to gasoline; we need to drive regardless of the prices and that is going to be the biggest driver, will be the rebound coming out of COVID as we increase mobility,” said Conner.

Higher oil prices benefit the oil and gas industry in Louisiana as well as state government.

“And the price of oil continues to go up, the little bit of operations that are going on in Louisiana, you know, you’ll see the service side be able to go up on rates and make more money, the oil company side will make more money on the oil, certainly the state makes more money on the severance tax but the activity level needs to go up and to do that we need to fix our state’s legal environment,” Moncla said.

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