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Texas Toast?
Trouble Looms for the Lone Star State

Anxieties are running high in Texas these days as the oil-rich state wrangles with a bearish crude market. One boom town is already reporting some troubling numbers, as Reuters reports:

Sales tax receipts in the thriving oil town of Midland, Texas, fell this month, only the second decline in five years and one of the first signs of how low oil prices are beginning to ripple beyond oil company bottom lines and into the wider economy.

But worrying signs can be felt outside of Midland, too. Bloomberg reports:

[T]he latest Dallas Fed Manufacturing Index shows some trouble in the Lone Star State…The general business activity index declined from -11.2 to -17.4 in March, vs expectations for a rise to -9.0. The February report also missed expectations, coming in at -11.2 from the previous reading of -4.4.

This is what happens when an industry you rely on goes through a tough time. But while Texas is a major oil producer—in 2013 it was the best-producing U.S. state—it’s also a major gas and wind energy supplier (it led the nation in both in 2013, as well). That diversification will do it no small amount of good in the coming months as the price of oil continues to hover at and below $50 per barrel.

These are early days yet, and so far shale producers have surprised analysts with their resiliency in the face of crashing oil prices. That may change under sustained pressure, but further drilling innovations could allow these producers to continue to turn a profit even at sub-$50-per-barrel oil. The benefits of the shale boom were magnified in Texas, and it stands to reason that woes brought on by a retrenchment will be similarly outsized. Everything is, as they say, bigger in Texas.

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  • fastrackn1

    There are plenty of people in the building industry here in Texas that are beginning to get worried about what will happen if the low oil prices continue (I think they will). As a spec house builder (I build first and then put for sale), I have already changed from building for the bourgeoisie to building for the proletariat (less risky).
    Construction has been too red hot here for the last couple of years and it does need to slow a bit and normalize, but if the oil prices stay low for years I think we will have some big problems here.

    • FriendlyGoat

      I didn’t know bourgeoisie and proletariat were allowed words in Texas. Just kidding. I get the seriousness of what you’re worried about in your business and wish you the best and the same to the people in your state. (Of course I wish the voting was more blue there, though, but that’s another matter.)

      • fastrackn1

        Hmmm…maybe I am able to use those 2 words because I lived in California for 7 years before I moved here in 2012? lol

        FG, if we had done more ‘blue’ voting down here over the years, we would be in the same mess….your right…”that’s another matter”…he he he….

  • Fat_Man

    This has happened before in Texas, many times. I doubt that they will be flustered by it.

    • Kevin

      I suspect it will hurt quite badly, just like last time. There’s always a tendency during a boom to delude oneself into thinking “this time will be different”. Just like Alan Greenspan thought we has licked cyclical boom and bust, during thus boom Texas was talking about how much they had diversified away from energy. All the talk about how fracking has gotten more efficient and can still be profitable <$50/b ignores that this very efficiency comes from paying for less labor and less to suppliers (as well as lower margins) which means there will be less of an economic boost to the local economy for every barrel produced. Texas may weather this downturn better than the last oil bust, but it will still hurt quite a bit.

    • fastrackn1

      They were plenty ‘flustered’ last time the oil market crashed to the degree it has now…mid eighties, I believe.
      There has been very few times in history that oil has crashed like it has now. The problems will come here if the price stays low for an extended period.

    • Josephbleau

      You are correct, Modern day Yankees need not wring their hands and pontificate about pore ol Texas. They will do fine with or without you.

  • FriendlyGoat

    It’s a complicated world when the Sunni Muslim King of Saudi Arabia could decide at any time to reverse course and curtail production with the effect of feathering the economic nest of Texas. But, I guess we shouldn’t forget $4.00 gasoline and the breadth of places in America and the world where consumers recently paid a lot of “seemingly-extra” money to both Islam and Texas. (No, I’m not forgetting the Dakotas and other oil states in the USA, but the article was about Texas.)

    • JR

      Sunni Muslim King of Saudi Arabia realized that he is fighting to death with his arch-enemy, Shia Persian King (Aytollah, whatever you want to call it) and decided that lower oil prices hurt his enemy much more than it hurts him. You want “off-shore balancing”, well, the cost of that is a lot more instability and war.

  • rheddles

    The oil price has the same effect all over the world, whether in Russia, Saudi Arabia, Texas, Norway or Nigeria. Some prepare better for it than others. The Texas economy is a lot more diversified than it was 30 years ago. And the Caliphornians are a lot stupider. Pouring water into the ocean while you proclaim $500 fines for a long shower. Personally I’d rather risk low oil prices.

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