Why are oil prices dropping amid the ongoing Russia-Ukraine conflict? Experts weigh in

Published: Mar. 15, 2022 at 6:48 PM CDT
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NEW ORLEANS (WVUE) - Even as Russia’s attack on Ukraine continues, oil prices dropped below $100 a barrel in the U.S. and on the global market, and industry experts say there are two reasons.

Prof. Eric Smith is with Tulane University’s Energy Institute.

“Which is still high but it’s not record high,” said Smith.

Smith said ongoing cease-fire talks between Russia and Ukraine are impacting oil prices.

“One is the talks on some sort of a cease-fire seem to be progressing or at least they haven’t stormed out of the room recently,” said Smith.

He said the surge in COVID-19 China is experiencing is the other reason.

“One of the largest consumers of crude in the world is China, and China has announced very extreme lockdown terms, which are going to limit people’s ability to drive and to transport materials. So, a reduction in demand is going on as well as a potential increase in supply,” said Smith.

Still, Americans are paying more at the gasoline pump and that may not change overnight even though oil prices are lower.

“Well, of course, the gasoline prices are still going up right now, but remember there’s about a two-to-three week delay between when prices for the crude drop and the inventory on hand at the refineries out runs out and they reprice based on lower-priced crude coming in, so that’s assuming nothing else changes which, of course, things are changing every day,” said Smith.

Smith also discussed how much gas prices may eventually drop.

“If we were looking at this exact condition in two or three weeks from now, you would expect to see some drop in gasoline prices on the order of 20-cents or 30-cents a gallon I would think,” he said.

Louisiana benefits financially from the oil and gas industry.

“Obviously, the ripple effects of the Russian invasion of Ukraine have impacted the oil and gas market significantly,” said Thomas Harris, Secretary of the La. Department of Natural Resources.

He spoke about the impact the war between Russia and Ukraine is having during a budget presentation at the state capitol building and noted that oil prices have been lower.

“Two years ago I appeared before you and the price was in the twenties,” said Harris.

Amid the U.S. ban on Russian oil, there are growing calls for more domestic oil production.

“The one lease sale we did have in the offshore arena was put on hold by a district court or a circuit court judge in Washington, that needs to be erased as quickly as possible, particularly because those deepwater projects are years in the making,” said Smith.

Harris says oil companies like more certainty when deciding whether to make significant new investments.

“There’s a lot of uncertainty before companies invest that type of capital expenditure, they want to minimize uncertainties,” said Harris.

Harris also said they look at oil prices and where they are likely to end up over an extended period of time.

“And that’s what oil companies make their decisions to drill or not to drill, to spend money or not to spend money. They base it on what they believe the price of oil going to be in a couple of years. If you’re talking about big deepwater projects out in the Gulf of Mexico that take may take five years to complete they’re worried about what the price is going to be 10 years from now,” he said.

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