Big D Equipment Co issued the following announcement on March 13.
Just last week, when crude oil prices fell to $46 a barrel, the mayor of the biggest city in the world’s largest shale oil patch seemed oddly calm, almost relieved.
Midland, in the heart of the Permian Basin in Texas, could use something of a slowdown, Patrick Payton figured, after breakneck growth had stretched services so thin that the police force could barely keep cops on the beat. Then a couple days passed, and the digital sign downtown that flashes the current oil price read -- suddenly -- $30. Payton could hardly take it in.
“Crisis is an overused word, but it’s a crisis of shock,” he said. “We have to adjust to our new reality.”
Texas as a whole might have to. While Midland represents a hyper-concentrated microcosm of the state’s dependence on oil, the economy still rides the tide of the industry even after decades of broad diversification.
In good times, it has helped the state grow far faster than most in the U.S., while in bad times it has weighed on growth. The oil war between Russia and Saudi Arabia that sent prices crashing is a threat. Factor in the coronavirus, which sparked a markets rout and is throttling global oil demand, and the picture gets bleaker.
The Dallas bank Comerica Inc. may further downgrade its 2020 economic growth forecast for Texas to 2%, after last month projecting it would slow to 3.1% from last year’s 4.4%. While 2% isn’t exactly lousy, and better than what’s expected for the U.S. as a whole, it would be a comedown for the Lone Star State.
“This could be dicey,” said Jason Schenker, president of Austin-based Prestige Economics LLC. “Right now, there are bumps in the road. We could see more than bumps -- potholes.”
The No. 1 crude producer in the country, Texas boasts more energy-company headquarters than anywhere else on the planet. Between 1997 and 2017, the business of oil and gas extraction made up 3% to 12% of the state’s GDP each year. But there’s also been a consistent uptick in jobs added in a range of other fields, including health care and finance.
“The non-energy part of the Texas economy has been growing so strongly,” said Robert Dye, Comerica’s chief economist. “That is a major stabilizing force.”
Will it be enough?
It’s a political question too, because a strong economy in Texas would benefit President Donald Trump while weakness could help his Democratic opponent in November.
Republicans are already facing headwinds there. Changing demographics -- boosted by an influx of young professionals -- make the state competitive after a generation of GOP dominance.
Trump won Texas by 9 percentage points in 2016 but now leads former Vice President Joe Biden, the likely Democratic nominee, by less than 3 percentage points, according to a RealClearPolitics average of polls.
In the Permian Basin in West Texas -- where half of all U.S. oilfield work occurs -- spending by producers is expected to drop 40% by year-end, according to Coras Research. Across the U.S., between 1,500 and 3,000 oilfield service jobs will be affected in the next two months, according to Matt Johnson, chief executive of Primary Vision, which tracks industry data.
Original source can be found here.