March 12, 2007

By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

The recent downswing in oil prices to $50 a barrel set off a volley of speculation, and the time of oil at $60 a barrel had come to an end. Naysayer’s were saying oil prices have peaked, and for consumers to look for even lower gasoline prices. Well, the dip didn’t last very long, in fact it was just a matter of days before prices began to climb back, and the doubtful sighed a breath of relief.

Personally, I did not feel the panic or discomfort some felt by the dip in oil prices. I well remember the mid-eighties and the many ups and downs of the oil and gas industry; which, have justifiably caused Wall Street to be cautious of the industry. However, this is a different time in the world of energy. The days of oil prices falling to the bottom of the barrel, no pun intended, have come to an end. We can no longer look across the U.S. 50 to analyze why oil prices are what they are; it’s all about WORLD oil supply and demand, Economics 101.

Suggestion to replace last two sentences of paragraph above with…

For the past three decades the Organization of the Petroleum Exporting Countries’ (OPEC) nations has often met to decide whether to open or close the valve, thus controlling the world oil prices. OPEC was able to do just that, being they had the capability of producing 3 to 5 million barrels a day surplus. With the power to influence world oil prices, OPEC also influenced world economies as they did in the mid-eighties by flooding the oil market, thus driving prices down and collapsing Russia’s oil revenue driven economy. Those of us in the oil industry in the mid-eighties well remember the crash from 4,500 U.S. active drilling rigs down to a mere 800.

Today OPEC still meets, but not to open the valve to increase production, but to close the valve to maintain higher oil prices.

OPEC nations and other oil exporting nations have become accustomed and comfortable with $55 to $60 a barrel oil. In reality opening the valve and flooding the market with oil is non-existent. World supply and demand are in balance with very little if any surplus to play with. The astonishing growth of China has devoured what surplus there was. The EIA (Energy Information Administration) projects China’s thrust for oil will double by the year 2030, while world demand will grow by 34 million barrels of oil per day.

With world oil supplies strained by the growth of China and India, it is doubtful we will see low oil prices in the future. There are no crystal balls, but for the near future we should see continued growth in Louisiana’s oil and gas industry.