Saudi Arabia declared an oil price war on Russia, which has caused oil prices to significantly drop.
Texas is one of the nation's highest oil-producing states and its economy and budget is often affected by oil prices. According to the Fort Worth Business Press, economic and energy experts and officials in Texas said it is too early to say what the impact will be on the Texas economy. The impact will depend on how long the deadlock between Saudi Arabia and Russia lasts and if the novel coronavirus (COVID-19) outbreak persists.
Officials said that if either remains a crisis, the impact on Texas could be terrible.
“The consequences for Texas of the drop in prices over the weekend will depend on two questions: how low, and how long,” President of the Texas Taxpayers and Research Association Dale Craymer told the Business Press. “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.”
Texas has an oversupply of oil, which could worsen Saudi Arabia's oil prices and oil increase. In the second half of 2019, there was a decrease in active oil rigs in Texas, which caused thousands of jobs to be lost.
Employment and tax revenues decline when oil production slows down. Budget cuts at local and state levels often come with slow oil production as well.
Glenn Hegar, Texas comptroller, said he predicted last year's oil prices to be approximately $50 per barrel. Hegar also said Texas' economy remains strong, but will be monitored.
“Certainly Texas has exposure if oil prices remain depressed for a sustained period of time, and slowdowns in economic activity related to the COVID-19 outbreak could also be a headwind,” Hegar said. “We are still only six months into the current budget cycle, however, and it is too early to tell with certainty how current fluctuations will impact long term economic performance and state revenues.”
Craymer said that Texas does have some cushion in the budget too. The budget has $2.9 billion to spare in addition to an $8 billion rainy day fund.
Eva De Luna Castro of the Center for Public Policy Priorities said it is too early to tell how Texas will deal with the situation.
“If things don’t rapidly improve, the agencies may be told to start cutting in their current budgets just to make room,” she told the Business Press.
De Luna Castro said lawmakers are more restricted after giving public schools more funding last year, which would make it so the government doesn't have to increase taxes.
“Just to not cut aid for students, the state has to come up with more and more money,” she said.
Due to a diversified economy, Texas can better handle an oil price drop. In 2014 when oil prices dropped, it made the oil industry cut prices to become more efficient.
Michale Webber, University of Texas at Austin energy resources professor, said the COVID-19 virus will change the economy. When oil prices drop, the demand for oil typically rises.
“There is significant demand disruption going on from coronavirus,” Webber said. “This is unique and that could be really bad.”
In an interview with Bloomberg, Faith Birol, executive director of the International Energy Agency, said “the situation we are witnessing today seems to have no equal in oil market history."
President of the Texas Oil & Gas Association Todd Staples is hopeful.
“While the current circumstances are very difficult and impactful to operations and employees, Texas oil and natural gas companies have proven themselves nimble and innovative in challenging times,” Staples said in a statement. “Historically, when oil prices have been down, free market principles, science-based regulations and ingenuity helped Texas operators weather downturns. Recent developments remind us that benefits associated with a thriving energy sector are not guaranteed.”
