oil prices

Sue Lincoln

Deep horizontal drilling for oil and gas is enormously expensive. The fracking process to release oil and gas from the shale reached by those deep wells is enormously controversial. But when one of those wells comes in, it’s enormously profitable.

“I know for a fact that companies absolutely want to drill those wells because we have that incentive,” Louisiana Oil and Gas Association president Don Briggs says of Louisiana’s severance tax exemption for deep horizontal wells. Passed by the legislature in 1994, it seemed like a good idea at the time, as it was encouraging new technology.

Sue Lincoln

Six weeks into the new state budget, and many are worriedly asking, “Is the new budget okay?”

“That’s a big unknown,” Legislative Fiscal Analyst Greg Albrecht told the Revenue Estimating Conference Friday. “We’re going to have a high degree of uncertainty, I think, in this overall package.”

The price of oil has dropped more than $10 per barrel over the past month. And many of the fortunetellers of fossil fuel finances are now saying this is the new normal.

“Fortunately for Louisiana, we took the most conservative pricing as we built the forecast for FY ‘15, FY ‘16 and ’17,” Commissioner of Administration Kristy Nichols says, noting that Louisiana’s revenue stream is no longer as heavily dependent on oil as it once was.

Oil prices hit a new high for the year Wednesday — closing at just under $61 a barrel. They've been rallying for a month, but nobody's predicting $4-per-gallon gasoline anytime soon. And some analysts say weak demand will send oil prices down again.

The recent rise follows an historic drop in prices, which were as low as about $45 a barrel less than two months ago.

So to understand what's going on now, let's look at what sent prices tumbling in the first place

When oil prices shot up a few years ago, many transportation and delivery businesses started adding fuel surcharges to their prices.

Now, fuel prices are plunging, but lots of those surcharges still linger, and consumer advocates are crying foul.

The drop in the cost of oil is a huge factor in the airline industry, where 30 percent of all expenses are for fuel. But airlines, along with other industries with large fuel expenses, have been slow to respond with lower prices.