The Odessa Economic Index increased all 12 months of 2017, and in fact logged its 14th straight monthly increase in December rising to 114.9 for the month up from 113.0 in November, and up 13.7% from the December 2016 OEI of 189.0. The Odessa general economy enjoyed a strong and buoyant recovery in 2017 following an oil-induced contraction lasting 21 months over which the Odessa Economic Index declined by some 18.6%. Every single component of the index posted strong annual improvement in 2017 compared to 2016, though construction and home building were lower in December and the fourth quarter compared to year-ago levels.
Not surprisingly, the Odessa Economic Index – and thus the Odessa economy – expanded rapidly in the fourth quarter as well, with a 15.2% annualized rate of growth in the index in the last three months of the year.
Annual records were established in general real spending and existing home sales in 2017, while other components of the Odessa Economic Index achieved sharp gains for the year and are well on their way to returning to pre-downturn peak levels. The Odessa Economic Index itself remains down by some 7.3% compared to its all-time high of 231.7 in January 2015. Depending on the momentum of continued recovery in 2018 (which is dependent on such things as crude oil pricing and the resulting shape of the regional upstream oil & gas economy), the index is probably on pace to reach and surpass its all-time high in perhaps the third or fourth quarter of the year.
The regional oil & gas economy continued its expansion and recovery in 2017 as well with the Texas Permian Basin Petroleum Index posting a 29% increase for the year and rising for the 15th straight month in December. The regional rig count improved modestly in December, adding four rigs on average compared to November, but increasing by nearly 48% compared to December 2016. The average 325 rigs at work in December represents an increase of nearly 170% compared to the cyclical low point of 121 rigs in May 2016. Still, rig count growth in recent months has been sluggish and the December monthly average rig count is still down by over 140 rigs compared to the 467 rigs on the job in late 2014.
The Texas Permian Basin Petroleum Index itself remains down by about 100 points compared to its pre-contraction peak, with little chance that gap will be bridged in the coming year. Even if the index were to increase by five full points each month – about what is has averaged thus far in the recovery – it would still take 20 months to return to its peak. The bigger issue, however, is that greatly higher levels of activity in terms of the rig count, drilling permits, employment, and even price do not appear to be necessary simply because Permian Basin crude oil production is increasing rapidly and is at or above record levels even with other indicators lagging considerably behind pre-downturn numbers.
Crude oil prices increased slightly from November to December, adding about $1.30/bbl on average from one month to the next (and then prices moved significantly higher in January). Still, the December 2017 monthly average is over $48/bbl lower than the June 2014 monthly average in advance of the ensuing price collapse.
The crude oil production increases in the Permian are nothing short of staggering. Basin-wide production (including New Mexico) broke all prior production records in 2017, reaching an estimated 2.7 million barrels per day in December and totaling about 880 million barrels for the year according to the US Energy Information Administration. Those numbers may be high, but either way crude oil production in the Permian was certainly north of 800 million barrels in 2017, the highest annual total on record, and the daily production totals surpassed the 1973 record in the early months of the year. The Texas Permian Basin Petroleum Index tallies production in the three Texas Railroad Commission districts that cover the Texas side of the Permian, and our estimation for crude oil production in that region totaled over 670 million barrels for the year, a 12.3% year-over-year increase, with daily production reaching 1.97 million barrels in December. Any future revision to these numbers will almost certainly be upward, and of course production will continue to rise in 2018 sending daily production in the Texas Permian over 2 million barrels in January or February and sending basin-wide crude oil production to levels approaching 3 million bpd by year-end.
In the Odessa general economy on the table of economic indicators for the month, with the exception of the December monthly and fourth quarter numbers in total construction and home building, all components of the Odessa Economic Index reflected improvement – in many cases dramatic improvement – compared to the totals from a year ago.
General real (inflation-adjusted) spending per December sales tax receipts was up by over 40% compared to December of a year ago, and the fourth quarter total was up by nearly 43% year-over-year. The 2017 annual real spending total was up by some 27% compared to 2016 and again, the monthly, quarterly, and annual totals are all records surpassing the prior peak levels in 2014.
Automobile sales activity, which nosedived sharply in both 2015 and 2016 remains well below pre-downturn levels but turned the corner sharply in 2017. Inflation-adjusted spending on new and used motor vehicles was up by 26% in 2016, on the heels of annual declines of 15% and 21%, respectively, in 2015 and 2016. Fourth quarter real auto spending was the second-highest on record behind only the fourth quarter 2014 total and was up by 43% compared to the fourth quarter 2016.
Construction activity in terms of real building permit valuations dropped off in the fourth quarter after posting double-digit percentage year-over-year gains in the second and third quarters but finished the year some 18% improved over the 2016 annual total. Still, however, total permit valuations in 2017 were down compared to each year 2012-2014 in advance of the slowdown. New housing construction permits (the value of which is included in the total building permit valuation) also dropped off at year-end but still managed a 12% increase for the year compared to 2016.
The annual number of existing home sales exceeded 1,300 in 2017 for the first time ever and outpaced the 2016 annual total by 20%. December and fourth quarter home sales were also at record levels, posting 34% and 27% year-over-year increases, respectively. The average price of those sales spiked upward in December, up by 18% compared to the December 2016 monthly average, which in turn was down by 8% compared to December of the prior year. The 2017 annual average (not adjusted for inflation) was the highest on record and was up by 6.7% year-over-year.
The total real dollar volume of Odessa home sales was up by a whopping 54% in December and 41% in the fourth quarter, both records for those time periods. The annual inflation-adjusted dollar volume of residential real estate activity was the second-highest on record (barely) behind the 2014 annual total but still was up by an impressive 25% compared to 2016.
The Odessa general economy clearly is moving into 2018 with considerable growth momentum, and there is every reason to expect that will continue to be the case for the foreseeable future. The Odessa Economic Index through 2017 is subject to revision in March when the revised employment data for 2017 (and possibly prior years as well) is released, but the strong likelihood is that it will be a favorable revision as all signs point to a sharp upward revision in 2017 employment data. That may well shorten the time until the Odessa Economic Index surpasses its January 2015 all-time high. When the revised employment data is released, the Odessa Economic Index will be recalculated to incorporate the updated estimates.