5 Takeaways about the Oil Market
Oil prices dropped so rapidly in the past eight months that Houstonians have been reeling, trying to figure out where things stand. Panelists at Bisnow's Impact of Oil and Gas event Thursday shared some fast facts about how energy fares today and what's coming down the line.
1. We'll Even Out at $55 Oil This Year
UT Center for Energy Economics senior energy adviser Deniese Palmer-Huggins (top left with her fellow panelists Planning & Forecasting Consultants president Dale Steffes, CBRE Research director Sara Rutledge, and Greater Houston Partnership regional economist Patrick Jankowski) predicts oil will hold steady around $55 per barrel this year. She looks at the futures market as a key indicator of how energy companies are feeling about the market (it’s where energy contracts are traded). As of Wednesday night, WTI was trading at $58 per barrel there. The Energy Information Administration is making the same $55 prediction, and that’s the number most energy companies are modeling for the rest of this year.
2. Oil Companies Lost a Mind-Boggling Amount of Income
Partner Engineering and Science manager Jeff Polasek says for every $10 drop in oil prices, major oil companies lose $3.2B in revenue. Because of this, most major firms have announced a 25% to 70% reduction in drilling. Land-based activity will be the most impacted, while offshore activity will remain more stable. Pictured: Our Impact of Oil and Gas event attracted 550 attendees.
3. This is Not the '80s
Every panelist stressed this emphatically. “This isn’t a funeral, it’s a baptism,” Planning & Forecasting Consultants president Dale Steffes announced, saying the energy industry will come out of this downturn renewed. Production has not stopped, and Houston will still net positive jobs in 2015, Greater Houston Partnership regional economist Patrick Jankowski says. (Although he’s not so sure about 2016.)
4. Houston's Still Dependent on Oil, But in a Different Way
In the ‘80s, Houston was mostly a blue-collar, manufacturing energy city (35% of our jobs were on the blue-collar side of oil and gas activity in the ‘80s, Patrick says). Now we're heavier on decision-making and office-based employment, and less than 20% of our jobs are energy manufacturing and construction based. We’ve also become a much more international city, Patrick adds.
5. The Downturn Has Bifurcated Houston
Our panelists pointed out two main ways the drop in oil prices is splitting Houston: east vs west and blue collar vs white collar. East Houston is mostly petrochemical companies, which are doing very well. (Crude cannot be exported, Deniese says, so refineries are at full speed trying to create product that we can sell abroad.) West Houston is more E&P heavy, and it’ll struggle more. Blue collar workers will fare better than white collar in this downturn, Patrick says, because they can move to the downstream sector if they lose their jobs. Downstream companies are looking to add 15,000 workers in the petrochemical complex over the next five years.