La. officials fretting over oil price swings

• By MICHELLE MILLHOLLON
• Advocate Capitol News Bureau
• Published: Sep 27, 2008 - Page: 1A - UPDATED: 12:05 a.m.

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State officials are staving off bouts of queasiness for now over the rollercoaster ride of fluctuating oil prices that help shape the state budget.

Prices surpassed $140 a barrel in July, dipped below $100 last week and fell Friday amid uncertainty about a White House economic bailout plan.

Demand and the weak dollar are driving the peaks and valleys of oil prices, creating uncertainty about when the rollercoaster ride will end.

Hurricanes Gustav and Ike also are playing into the price volatility. Investors are concerned about the storms’ impacts on supply.

Louisiana, an oil and natural gas-producing state, relies heavily on mineral revenue to run state government.

Because they do not know what the price of oil will be when they write the budget, state officials turn to economists for an educated guess. Recently, that guess has been conservative, generating surpluses because the average price of oil was higher than budgeted.

For the fiscal year that began July 1, state budget officials used an oil price of $84.23 a barrel. Oil prices hovered around that mark in February but have since steadily climbed. Even the recent dips are higher than $84 a barrel.

“Volatility is not going to affect the budget this year unless it really gets volatile,” said Jim Richardson, an LSU economist and chairman of a committee that sets state revenue figures.

Richardson said he is comfortable with the $84-a-barrel estimate even given the severe national financial crisis and the depreciation of the dollar.

Commissioner of Administration Angèle Davis said the conservative price estimate cushions the state from the fluctuations.

Besides, she noted, the day-to-day price of oil matters less than the average price over time.

“A short-lived spike … should not have a material effect on state revenue,” Davis said.

However, half of the state’s oil production still is shut down because of Gustav and Ike.