Despite the reduction of worldwide demand for crude oil by approximately 2 million barrels a day as a result of a number of factors: reduced demand in the travel sector, quarantines keeping workers at home, and manufacturing at reduced levels in the main manufacturing regions of China, Italy, and other regions of the globe, OPEC+ has determined that no production cuts will be made at this time. As a result, oil is currently sitting at $33.31 a barrel. This price war between Saudi Arabia and Russia to achieve market share will have a spillover impact on other oil producers across the world, and Texas will be no exception.
The combination of Coronavirus, oil market uncertainty, and the stock market correction/volatility indicate short term headwinds for economic growth for the immediate future. That said, the long-term prospects for economic growth in this region remain in place, as major long-term manufacturing and energy distribution projects continue to move forwards with profit horizons measured in years rather than months.
This region’s two closest/ largest shale producing regions, the Eagle Ford Shale and the Permian basin, have current break-even prices for existing wells at $28 per barrel and $27 per barrel, respectively. This means that if the current pricing remains or even continues to sink, it can be anticipated that new well drilling activity will be significantly reduced and existing wells could become idle until a price increase makes them profitable again. However, the current market volatility in pricing is not sustainable, and we may anticipate both Saudi Arabia and Russia returning to the negotiating table to reach a production resolution.
The result on our local economy in South Texas could be a temporary uptick in the unemployment rate, as workers in those shale plays who have families and residences in our area come home to file for unemployment if production wells are shuttered, which will result in decreased spending activity at local businesses, as well as an economic hit for local companies who service drilling activity.
The scale of this impact will be determined by the amount of time that oil prices are reduced and how prepared our local economy is to weather this storm. We continue to monitor the underlying global and regional economic data and will be reporting on what we see occurring. The Corpus Christi Regional Economic Development Corporation (CREDC’s) efforts to diversify our economy has resulted in large investments in manufacturing facilities in our region, adding tens of thousands of jobs and a market for shale oil that does not require export and sale. The long-term nature of these projects, such as world-scale plastics manufacturing, steel production, and other related industries, means that we are somewhat insulated from short-term fluctuations in market forces. This will help our economy to remain as stable as possible during this global event. We will continue to closely monitor this unfolding situation to determine the best way forward for our economy.