What Will Oil Do To Texas?
The worldwide decline of oil has been continuing, falling to levels not seen since 2004 in the UK and 2009 in the US. In the UK, Brent Crude sank to $36.05 a barrel, the weakest since July of 2004, before recovering slightly to $36.56. Yesterday in the US, the price of crude fell down 40 cents to $34.17 a barrel. The price of oil has been suffering due to a global oversupply, as suppliers are unable to reach agreements as to what to do about the issue. Compare this to 18 months ago, when oil was sold at $115 a barrel.
This falling price has had many in Texas bracing for another oil bust. But this could be a big problem; after California, Texas is the largest economy in the US, with nearly $1.5 trillion in gross state product last year.
While this crash might not inflict too much damage, there is nonetheless a very good chance that the supply glut will weigh on Texas oil in the upcoming year. When oil prices began this latest pullback, Texas started bracing for another economic recession, typical of the boom and bust nature that has characterized the Texas oil industry since the Lucas gusher first occurred on Spindletop Hill nearly 115 years ago. Despite this, Texas oil has seen plenty of success, although this success seems to be damaging it as well.
After a steady decline in the 80s and 90s, oil producers staged a remarkable and mostly unexpected revival of the past 10 years through new drilling technologies. The result of this revival was a flood of oil that sent prices plunging. While major oil producers in the Middle East could be trusted to curb their production to keep prices high, foreign oil producers these days are strongly reliant on oil profits and show no signs of slowing output. This steady build of global oil stockpiles means that there doesn’t seem to be any sign of the downward trend of oil reversing. This downward trend has brought a drop in rig counts and a rise in layoffs across the energy-producing regions in Texas, and have damaged the state’s economy.
The downturn of energy has also hurt the northern part of the state. Luckily, however, northern Texas has continued to attract out-of-state companies that have helped to increase economic diversity and fuel continued growth in commercial and residential real estate construction. This economic diversity could help Texas avoid a painful recession, like what happened when the state was more heavily reliant on oil and gas. Even though the economy has slowed, there seems to be signs that it’s finding its footing, but there’s still a long way to go. With these oil prices set to remain low for the foreseeable future, a lot depends on how long oil producers can wait out this rough patch. Many producers have been losing money at the current prices, and are hoping to stay in business long enough to see oil get its groove back again.