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Dallas Fed sees darkening skies for Texas oil, gas sector

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Dallas Fed sees darkening skies for Texas oil, gas sector

The Texas oil patch may be in for rough sledding as falling oil prices take a toll on the region, the Federal Reserve Bank of Dallas said in a series of local and regional outlooks.

In its look at the economy of the Permian Basin, the prolific oil production zone in the western part of the state, the Dallas Fed said employment in the region fell for the third month in a row in November 2018, down an annualized 7.8%, to about 185,500 workers. The Dallas Fed said employment in the region remains tight, but the situation could turn sour for the whole state in the coming months as West Texas Intermediate crude prices hover around $50 per barrel.

"Historically large changes in real oil prices lead changes in Texas job growth by about six months," the Dallas Fed said. "This pattern suggests that if oil prices remain low, Texas job growth is likely to weaken during second quarter 2019."

The Dallas Fed's most recent energy survey, released Jan. 3, showed a significant slowing in sector activity in the fourth quarter of 2018 as oil prices rapidly declined. The business activity index of energy firms — in which positive numbers indicate that more firms are growing than shrinking — plummeted from 43.3 in the third quarter to 2.3 in the fourth quarter.

"Readings near zero indicate activity was largely unchanged from the prior quarter, a break from the 10-quarter-long trend of rising activity," the Dallas Fed said, noted that the decline was driven by cutbacks by exploration and production and oilfield services firms.

The bank said oil and gas production increased for the ninth consecutive quarter, but at a slower pace. The oil production index dropped from 34.8 in the third quarter to 29.1 in the fourth, while the natural gas production index fell from 35.5 to 24.8.