Oil prices, oil prices, oil prices, rings across the industry at the moment and we can’t get away from discussions on the topic, try as we might. Also, we are all seeing the global impact as prices at the pump become cheaper and the upstream sector begins to struggle slightly. However, do we know what is really going on when it comes down to smaller geographical areas?
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I’m going to start small (well maybe not that small) with Houston, Texas. I read an article from The Economist a day or two ago, which proved to be very interesting. ‘Life in the sprawl’ takes a look at how Houston is dealing with the current oil price situation, and across the city the bag is very mixed. Some companies such as Halliburton and ConocoPhillips have been cutting jobs in the Houston area over the past few months and the article reads that “if high paying corporate posts go, the effect on the rest of the Houston economy could be dramatic.” Of course, if a region that relies so heavily on the oil sector sees jobs being cut, the rest of the economy as a whole will be impacted. However, the article also pointed out that some projects are going to continue regardless of the oil price slump, and chose ExxonMobil’s relocation to Houston as an example. This vast project is so committed that it isn’t going anywhere, so while the drop in oil prices will hit Houston it’s more likely to slow growth in the region rather than quash it altogether. Moreover, The Economist reports that Patrick Jankowski, an Economist with the Greater Houston Partnership, has said that “Houston could add as many as 50 000 new jobs this year.” So, things aren't all doom and gloom.
To broaden this brief analysis, let’s look at Texas as a whole and how the drop in oil prices is having an impact on tax revenues. In a recent report, the US Energy Information Administration (EIA) commented that in August last year the state gathered US$583 million in tax receipts from the oil and gas production sector, which then dropped by 40% to US$352 million in January this year. These figures make it startlingly clear that the drop in oil prices is having a big impact on the largest oil producing states in the US and the same is also true for North Dakota, Alaska and Oklahoma. North Dakota saw a 21% drop in tax revenue for the same period while Oklahoma saw a drop of 30%. Alaska saw tax revenues fall from US$108 million in August last year to US$26 million in January 2015, a huge percentage drop that will no doubt have a very significant impact on state spending, as oil and natural gas production tax in the state represents one of the four primary components of petroleum revenue. So in total between August 2014 and January 2015 tax revenues across four of the US’ top oil producing states have dropped by US$401 million. But once again, I need to point out that not all is doomed for as oil prices fall, some industries are going to benefit and we can look at drivers, plastics and chemical producers in particular.
The oil price slump is indeed a global phenomenon and we can all clearly see what is happening on a global market scale, but it is interesting to look a bit more closely under the microscope and discover what is happening regionally and maybe a bit closer to home.