Will More Oil Prove a Boon or Burden to West Texas?
Last month, geologists announced the discovery of an oil field in West Texas that is likely the largest ever found in the United States – typically the kind of announcement that could be expected to reap big economic dividends for local communities, including a big boost to home values. But in today’s economic and geopolitical climate, the presence of the oil itself will likely matter less to the local economy than global markets’ reaction to it.
If and when the new field begins production, Texas – already the epicenter of the U.S. oil and gas industry and no stranger to often volatile booms and busts driven by the supply and demand of King Crude – could see a substantial increase in oil and gas output in the years ahead. But increased output is a double-edged sword.
Over the past half-decade, new technologies have enabled the extraction of previously unrecoverable oil, fueling a boom in U.S. oil production. In turn, this glut of new supply helped push the overall price of oil down near historic lows. In June 2014, the average spot price for West Texas Intermediate crude[1] touched $106 per barrel. Over the next 18 months, however, oil prices plummeted, bottoming at $30 per barrel in February 2016. Prices have since recovered somewhat, but remain at less than half their pre-crash peak according to the U.S. Department of Energy.
Beginning in fall 2011, when U.S. domestic oil production started to really take off, through April 2015 when oil production peaked (at least for the time being), economic activity and employment grew rapidly in Texas’ four major oil producing regions. These regions mostly encompass rural communities, but in several instances span larger, suburban communities – the Barnett Field, for example, includes much of the economically diverse Dallas-Fort Worth metro area.
Home values in each of these areas largely did very well during the oil boom years, though the timing also overlapped with the nationwide housing market recovery, obscuring the precise drivers of the market. But as oil prices have held stubbornly low, oil production and discovery companies have cut jobs and oil-related economic activity has slowed or even contracted. Home values in the better-diversified economies in central and eastern Texas have largely managed to keep growing, but growth in West Texas – home to the latest big find – has stalled in the face of a tough oil economy.
Use the tool below to explore how home values have changed over time in each of Texas’ four major oil-producing regions.
There are a number of reasons why housing in Texas’ major oil-producing regions has performed unevenly.
First, in the Barnett and (to a lesser degree) Eagle Ford regions, more economically diverse suburban communities make local housing markets less reliant on the whims of oil prices. The Dallas metro, in particular, has seen booming employment in financial services and as a hub for multinational headquarters relocating from higher-cost parts of the country. Second, though oil production has slowed somewhat of late, it remains relatively high even as prices stay low. As of August 2016, overall U.S. domestic oil production (which includes Texas regions and also large areas of the Dakotas and Pennsylvania, among others) remains roughly 60 percent above where it stood in summer 2011, on the eve of the production boom.
Finally, low oil prices might adversely impact direct employment for workers in the fields themselves. But many downstream consumers benefit greatly from low oil prices – everything from cosmetics firms to plastics companies that rely heavily on petro-chemicals to make their products. These kinds of consumers have a meaningful employment footprint across the region, and can act as a buffer or counterweight to jobs lost on rigs and laying pipe.
But less-diversified areas like the Permian Basin – a largely rural swath of West Texas anchored by the communities of Midland and Odessa – don’t have as big of a buffer, and are less shielded from the volatility inherent in the oil industry. If oil prices soon recover to the highs seen just a few years ago – which may seem unlikely now, but stranger things have happened – there will likely be a rush of activity in the region to begin extracting the oil and capitalizing on those higher prices. Then again, bringing on a surge of new supply in the face of high oil prices is likely to help push oil, and potentially housing, prices down again.
So while the historic discovery of billions of barrels of crude oil is likely good news for those of us eager to keep fueling up on cheap gas, for many West Texas residents it could be a case of too much of a good thing.
[1] At Cushing, Oklahoma.