Corey Paul | Odessa American
Higher-than expected oil prices buoyed Odessa’s economy this year despite forecasts of flattening growth, according to the latest Odessa Economic Index by the Amarillo Economist Karr Ingham, released Friday.
Ingham was one of those who had anticipated that job growth, building and other signs of the booming economy would slow down after years of going gangbusters. That sort of softening would give infrastructure a chance to catch up to demands.
But it didn’t happen that way, with benchmark oil prices during the first half of year in the $100 per barrel range, attributed in part to global conflict.
Ingham’s monthly study — which examines a number of factors in the metro area such as building permits, hotel and motel tax receipts, auto sales and the rig count of West Texas — showed increases across nearly all economic indicators from the same period last year. Ditto the past few reports, which bucked a trend of slower growth rates.
“You need to be very watchful about what crude oil prices are doing because it’s going to be noticeable in the general economy in a very short period of time,” said Ingham, who has been studying the local economy since 1996. “That’s a relatively new phenomenon, this kind of hypersensitivity of the general economy to crude prices.”
The latest report for the month of July reflected jobs being added at a faster pace than earlier in the year even though Odessa had the second-lowest unemployment rate in the state of 3.6 percent.
Auto sales increased 20 percent year-over-year through July. Sales tax receipts reflected an increase of 14.5 percent in real general spending from July of 2013. Airport activity through July increased 6 percent.
The list goes on through every data point except for building, trending downward so far this year as developers branch out to less developed land following the intense construction of the past few years. Nonetheless, building permits in July totaled nearly $39 million, representing the second-highest monthly total on record behind July 2012.
The index as a whole for July rose to 220.6 from 212.5 for the same month of 2013, which represents a nearly 4 percent increase.
Ingham’s latest monthly report followed a longer-term study of by Texas Tech University researchers that estimated the economic impact of the entire Permian Basin’s oil activity, an output they pegged at nearly $138 billion. A breakdown for Ector County counted more than 68,000 workers in 2013 whose jobs were in some way tied to the oil and gas industry, using a broad definition that included everything from retail to real estate. The total income of these workers was more than $4.6 billion.
“They may have been there to begin with, but there are more of them and they are bigger and doing better as a result,” said Brad Ewing, professor of energy economics in the Rawls College of Business, a co-author of the study.
The oil economy should continue growing given the Permian Basin’s vast crude resources, but that depends on prices and building the infrastructure to get oil to market, he warned.
Today, the oil and gas industry faces a pipeline takeaway capacity inadequate for the 1.7 million barrels of oil a day they are expected to produce this month. That means discounting the crude to account for higher transportation costs.
“It will get worse until the pipeline capacity expands, which it will in 2015,” said Steve Pruett, CEO of Elevation Resources and the chairman of the Permian Basin Petroleum Association. “It affects all of us.”
By mid-August, the glut became so severe that discounts reached up to $21 per barrel from the benchmark West Texas Intermediate price set at Cushing, Okla. That reflected a barrel price for Midland crude of $73.48.
The price of WTI on Friday was $93.44.
“A $10 change I think is going to be noticeable,” Ingham said. “If it turns out to be a bigger discount than that I think it’s going to be certainly noticeable. It’s going to be an interesting few months.”
Contact Corey Paul on Twitter @OAcrude on Facebook at OA Corey Paul or call 432-333-7768.