$100 Oil? Not So Fast!
By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

Crude oil prices have been in decline for the past few weeks, and everyone is taking credit: Bush, McCain, Obama, Pelosi, Congress, and anyone else who weighed in and has decision-making authority. There was even a point that oil fell just below $110/bbl. This led to articles popping up everywhere – “Oil may fall below US$100,” www.mmail.com - “Crude oil losing steam; to fall below $100 a barrel: Analysts,” The Economic Times. And while this is welcome news around the United States, there are areas of the world that do not like “cheap” oil. It is because of this reason and a few other geo-political happenings that we should not get used to the idea of “cheap” oil.

One of the bright spots in America’s future has been the relationship being built with Iraq. Iraq sits on the largest producible oil fields in the world. One of the anticipated outcomes of the Iraq War would be the US involvement in the production of Iraq’s oil fields. However, China has been working diligently behind the scenes on their own involvement in Iraq. In October of 2006 China and Iraq began talks of resuming the agreements made between Saddam and state owned China National Petroleum Corp. An initial agreement was made between the two parties this August for China to develop the billion-barrel Ahdab oil field. Though we are talking about the Ahdab oil field, the groundwork has been laid for China to be a major partner in Iraq’s oil fields, once thought to be the future of US oil imports.

Another concern for America’s energy security is Russia. Russia is now the largest oil producing country in the world, and to say that US-Russia relationships are a bit strained, is a bit of an understatement. Just this past week, the US signed an agreement with Poland to locate part of a US missile defense system inside Poland. Russia made very public statements of disapproval about the agreement, but the US decided to move ahead anyway. Add this to the already tense situation in Georgia, and Russia is in position to cause serious increases in the price of oil rather quickly. As the second largest exporter of oil, an attack on Georgia and a decision to slow exporting could cause a meteoric rise in prices, without reducing Russia’s oil revenue.

The most serious, obvious and immediate concern for the US is the affection OPEC producing countries have for American money. Any price over $100/bbl and all of America is calling out for increases in production everywhere, except in their own backyard. OPEC has learned we will still continue to buy oil as high as $145/bbl. This has caused their coffers to swell, allowing them to improve their countries and buy ours. As the price of oil falls, so does their revenue, and they do not like it. So Venezuela is poised to cut production, sighting an apparent over-supply of the market that is causing the decline in the price of oil.

Do I think the current slide in oil will continue below $100? No. Do I think it will remain around $110 or $115? No. I think we are just in the beginning of high oil prices, and we had better act fast to protect ourselves. How are we going to do that? It’s happening right now in our backyard….Natural Gas.

Don Briggs is president of the Louisiana Oil and Gas Association. His column appears in The Advertiser twice a month.