The gist: War in Ukraine has driven oil prices above $100 a barrel for the first time in more than seven years. The crisis stacks more pressure on the global economy, still clawing its way out of Covid. What does that mean for home?
Higher prices all around. Economic sanctions and higher prices leave plenty of room for domestic oil production to ramp up. We could see more activity in Acadiana from the service and manufacturing companies, but we’re still going to have higher prices, says Stephen Barnes, an economist and director of the UL Blanco Public Policy Center. Even a surge in production won’t push prices down anytime soon.
“The U.S. and other major producers will certainly increase production, but even then we’re most likely going to see higher prices for quite a while,” says Barnes.
Yes, the U.S. has room to produce more. Wagner pegs about 20% of unused domestic production capacity. Markets have been tight — high demand with short supply — and it’s unclear whether the high prices might get more production off the sideline. If it does, that’s going to favor existing leases and operations that can spin up faster. Think fracking, not new offshore activity.
“Fracking on private land/leases in particular could ramp up quickly (and likely will),” Barnes says. “High prices may also lead some Gulf of Mexico producers to push harder, or move forward with some developments that were only marginal on the economics so we may see a boost in GOM production as well, but that is more about getting a little more out of what we are doing rather than starting entirely new things, which take much longer to develop.”
More drilling ≠ jobs. Oil companies have become more efficient, requiring less labor. The U.S. is producing 12% more oil today than it did in 2014, the last time we saw $100 oil, according to Acadiana Business Economist Gary Wagner — with less than half the number of workers. Plus, new production won’t come from new leases, which take years to produce more oil.
“The oil and gas sector has been one of the few sectors, along with manufacturing, that have continued to shed jobs post-Covid,” Wagner says.
This won't speed up the post-Covid recovery. Energy prices underpin the cost of just about everything. And we could see consumers start to spend less as costs go up.
"Many of these economic headwinds are increasing concerns about a more general economic slowdown (not to scare people with the “R” word) and that could do more to reduce consumption," says Barnes.
Uncertainty all around. Louisiana’s severance taxes will capture more revenue from higher oil prices, but that’s set against a mixed outlook. We also can’t say for sure how much oil companies might ramp up production. All we can really say for certain is the tragedy in Ukraine will influence economic conditions in Louisiana.