How will collapsing oil prices affect Texas? It depends on these two factors, experts say.

[TexasTowelie]

by Kiah Collier, Texas Tribune

Oil prices plummeted to their lowest point in decades over the weekend as Saudi Arabia declared a price war on Russia, adding another stressor to financial markets already reeling amid concerns over the rapid spread of a new strain of coronavirus.

While Texas’ economy and budget are highly sensitive to oil prices as the nation’s top oil-producing state, economic and energy experts and state officials said Monday that it’s too soon to say how big of an economic hit the state will take. That will depend on how long both the Saudi-Russia deadlock and the COVID-19 outbreak persist.

If either one becomes a prolonged crisis, they say, the impact could be devastating.

“The consequences for Texas of the drop in prices over the weekend will depend on two questions: 1) how low, and 2) how long,” Dale Craymer, president of the Texas Taxpayers and Research Association, wrote in an email. “Of course, we can’t look at the impact of a drop in oil prices on Texas in a vacuum. Behind all this is the economic impact of the coronavirus, which is still uncertain.”

Read more: https://www.texastribune.org/2020/03/09/how-will-oil-price-collapse-impact-texas/

[duforsure]

1. I think some Texas producers of oil will be forced out of business if the prices remain low long,

As far as the oil being run at refinery's they'll be pushing using the cheaper Middle East oil even though it has much higher sulfur rates , but many refinery's can run it , and it being a lot cheaper to buy . Until it comes back up the cheaper choice will be to use the sour crude.

[PJMcK]

2. Could someone please explain this to me?

Lower oil prices used to be a good thing for Americans. It meant that gas prices would drop resulting in increased travel and economic activity.

But a price war between Saudi Arabia and Russia, which will lower gas prices for Americans, is bad for the economy. I understand how that would hurt the Texas oil industry but what about the Americans in the other 49 states? Won't their fuel costs be lower?

I sense that I've over-simplified the issue and appreciate any enlightenment.

[TexasTowelie]

3. It means that instead of using domestic oil

we will be sending money to Saudi Arabia for the cheaper oil. That money may work its way into unsavory hands and finance terrorism. It also finances the whims of the Saudi royal family.

With lower oil prices, people will also feel like they can afford to travel which would have negative environment effects.

It also has a negative economic effect on banks and investments since the capital that is loaned to the oil industry cannot be repaid.

It effects other businesses since some people can no longer afford hotels, restaurants, new vehicles, and leisure activities.

It effects state governments since they have to pay more unemployment claims, SNAP benefits, and other welfare assistance.

[PJMcK]

4. Thanks, that's interesting

Is there a balancing point of gas prices? Or should we only use domestic oil? Is there an economic formula or ratio of foreign and domestic oil?

When gas prices approached $4 a gallon, there were all kinds of negative economic results. As I wrote, I'm over-simplifying the issue.

Thanks for your response, TT.

[TexasTowelie]

5. Oil needs to be around $60 a barrel in order for the oil industry

to be profitable in the Permian Basin and Eagle Ford shale regions of Texas. I suspect that price is also necessary in other shale oil fields such as North Dakota and Pennsylvania. That should put gasoline prices in the $2.50 - $3 per gallon range in most regions of the country. It might be higher elsewhere due to taxes in each state.