LOW CRUDE PRICES MAY AFFECT SMALLER TEXAS TOWNS

By TONI ELLINGTON

The Fitch credit rating agency is reporting that the recent drops in crude oil prices may negatively affect some local governments in oil states like Texas.  In November 2014, the price per barrel for crude oil hit a four-year low at $69.85 per barrel for West Texas International crude.  On January 13, 2015, the New York Stock Exchange listed $45.89 per barrel as the price for crude.

These prices are a sharp contrast to the prices of early 2014, when the average price per barrel was near $100.  Prices began to fall in late 2014 after OPEC failed to cut production to ease a glut in supply.

However, Fitch reported that many of the large cities in Texas are prepared and equipped to deal with lost oil revenues.  The impact will be hardest in smaller towns and cities in the major drilling areas of Texas such as the Eagle Ford Shale and Permian Shale regions.  Recent increases in drilling activity in those regions have generated higher income from higher sales tax revenues, tax-based valuations, and consumer spending.  The slowdown in drilling activity due to low crude prices will affect employment in hotels, restaurants, retail, construction, and other related businesses, according to Fitch.  Cities will also show declines in building permit fees and other revenues related to the local economies.

Credit estimators are quick to say that Texas as a whole will be stable because of a more diversified economy.  Much of the income generated in Texas from spikes in oil production in the recent past has been spent on strengthening the state’s rainy day fund or on major infrastructure investments like highways.

For information, contact Toni Ellington at (504) 599-8500.