Mixed economic indicators for the upstream oil and gas industry in Texas have industry watchers wondering which direction the industry will be going during the remainder of the year.
The Texas Alliance of Energy Producers’ “Texas Petro Index” (TPI) has declined during the last three months, but is still ahead of the same period in 2022.
The culprit – primarily lower prices.
“Once again, weak pricing for crude oil and natural gas are largely responsible for the decline, with downward pressure on the index coming from prices themselves, as well as the falling value of crude oil and natural gas production,” Alliance Executive Vice President Karr Ingham, who is a petroleum economist and author and founder of the TPI, said. “Drilling permits are the other TPI component to register year-over-year negatives for April and the first four months of the year.”
“Nominal (unadjusted for inflation) crude oil prices (posted WTI) increased in April, averaging $75.22 for the month,” Ingham said. “This is up from $69.28 in March but still down 23% compared to year-ago levels. In real (inflation-adjusted) terms, the April crude oil average is down by nearly 27% year-over-year.”
“Nominal natural gas prices are down a sharp 71% in April compared to year-ago levels, and in real terms were off by close to 73%,” he said. “That means that, even though production continues to climb, the real value of that production is down by over 20% for crude oil, and nearly 60% for natural gas production through the first four months of the year.”
Ingham points out employment numbers in the oil patch continue to rise as does crude oil and natural gas production.
The industry continues to add jobs, though at a snail’s pace over the last three months. The upstream oil and gas industry has added more than 20,000 jobs over the last 12 months, but only a net of about 115 jobs have been added over the last three months, Ingham said.
“A sustained decline in the Texas Petro Index means a contraction in the upstream oil and gas industry in Texas,” said Ingham. “Declining prices, followed by a decline in drilling permits, suggests that the rig count will weaken in the coming months, absent price recovery that would turn things around. At some point, employment will follow suit. We can hope that the economy shrugs off a recession and that growing domestic and global demand will begin to stabilize prices and return some optimism to the oil patch in 2023.”
Alex Mills is the former President of the Texas Alliance of Energy Producers.
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