Basin’s petroleum economy shrinks 35 percent

Associated Press
Staff Writer

Strengthening commodity prices late in the first quarter helped slow but didn’t halt the decline in the Permian Basin’s oil economy.

The Texas Permian Basin Petroleum Index prepared by Amarillo Economist Karr Ingham has declined for 16 consecutive months, with the March index 35.4 percent below March 2015 levels.

The March average oil price of $34.58 was above the February average of $27.08 but is still 21.8 percent below the March 2015 average of $44.24 a barrel. Year-to-date prices are averaging $30.03 a barrel, down 33.8 percent from $45.35 in 2015.

Natural gas prices followed crude oil’s lead, posting a 40.2 percent decline to average $1.59 per Mcf, down from $2.66 the previous March. Year-to-date, prices are averaging $1.87 per Mcf, down 32.1 percent from $2.75 a year earlier.

Drilling activity in the three Railroad Commission districts that cover West Texas — Districts 7C, 8 and 8A — continued to decline through the first quarter, and Ingham said it has fallen further since then. The count averaged 139 rigs in March, down 44.8 percent from the 252 rigs averaged last March. For the year, the rig count is averaging 154 rigs, down 52.1 percent from 321 in the first quarter of 2015.

That decline has led to the loss of more than 8,900 jobs in Midland-Odessa. Of that total, about 4,700 jobs have been lost in the oil and gas industry compared to the previous March and almost 6,000 jobs so far this year compared to the same period of 2015.

“Thus far, oil and gas industry employment in Midland-Odessa has fallen back to early 2012 levels, with more to come before this cycle of contraction is complete,” Ingham said.

The Railroad Commission has issued 864 drilling permits so far in 2016, down 33.8 percent from the 1,306 issued a year ago. Ingham noted that is the lowest first quarter total since 2003.

Despite the significant decline in activity, Permian Basin oil volumes continued to rise, though that increase has narrowed in recent months. March oil volumes were 4.5 percent above March 2015 levels, and volumes so far this year are 7 percent above year-ago levels.

March natural gas volumes are 10.2 percent above year-ago levels and year-to-date volumes are 12.2 percent above year-ago levels.

Michael Wittner, global head of Oil Market Research at Societe Generale, said in a recent commentary that U.S. crude output is the single biggest factor in the outlook for both fundamentals and market sentiment.

In his commentary, Wittner said several factors have reinforced the market’s view that the ongoing global oversupply will continue unabated for at least the first half of this year.