The Odessa Economic Index declined again in May falling to 200.7 down from 202.4 in April, and down 12.4% from the May 2015 OEI of 229.1. The index peaked at 231.9 in January 2015 before beginning its decline in response to lower crude oil prices and the resulting sharp contraction in the regional oil & gas economy, and has now lost 13.4% of its value since then. Building permit valuations and existing home sales posted year-over-year increases in May, but all components of the Odessa Economic Index remain in the throes of contraction to one degree or another.
The monthly average crude oil price posted its third straight month of improvement in May, rising to $43.38 (WTI Plains All-American posted price), compared to $37.51 in April and a low of $27.08 in February. While price improvement has now stabilized the rig count, the Texas Permian Basin Petroleum Index declined for the 18th straight month falling to 214.1 down from 216.8 in April, and down about 34% compared to the May 2015 TPBPI of 323.5 (and the high of 381.2 in November 2014).
The rig count monthly average dropped again slightly in May to 121 down from 123 in April (for Texas Railroad Commission Districts 7C, 8, and 8A), but has since added a few rigs in response to higher prices over the past three months. The number of permits remains quite low, and in fact posted a 25% year-over-year decline in May after adding a few permits in April (compared to April of a year ago). In other words, the recovery in the regional oil & gas economy is thus far a plodding recovery even though prices have doubled off the February low point (and $45 oil doesn’t necessarily point to strong recovery, anyway).
Even though crude oil prices began to decline in July 2014 and the Texas Permian Basin Petroleum Index did not peak until November 2014, general spending across the economy – a pivotal local economic indicator – remained seemingly unaffected until early 2015, and did not begin to exhibit year-over-year declines until the second quarter of 2015. Double-digit percentage year-over-year declines became the norm in the second half of 2015 and that remains the case through the present. General real (inflation-adjusted) spending per May sales tax receipts in Odessa were down by 24% compared to May of a year ago, and the total for the year-to-date is down by 23% compared to the total for the first five months of 2015.
Auto sales activity is in much the same boat, of course, with inflation-adjusted spending on new and used motor vehicles down by nearly 12% in May compared to May of the prior year (which in turn was down by 22% compared to May of the prior year). Year-to-date real auto spending is off by 24% compared to the January-May 2015 total.
Building permit activity was one of just two components of the Odessa Economic Index to post a year-over-year gain for the month of May; the inflation-adjusted valuation of all permits issued was up by 39% compared to May of last year. However, the year-to-date total is still in negative territory by about 13%, and the total for the 12 months ending May 2016 remains down by 50% compared to the total for the 12 months ending May 2015.
New housing construction continues at a quite respectable level, actually; the total number of permits issued thus far in 2016 is essentially level compared to year-ago levels, and is actually the third-highest total ever for the first five months of the year, behind only 2013, the record year of 2014, and 2015 (two fewer permits thus far in 2016).
Existing home sales were up for the month, and are down only slightly for the year-to-date. The average price of those sales dropped off sharply in May, down by 18% compared to May of a year ago. For the year-to-date, however, the average price for the first five months of the year is down by just two percent compared to the January-May 2015 average sale price.
Odessa and the Permian Basin in general continue to hope and wait for signs the economy is bottoming out and preparing to enter another long period of expansion. But again, the regional oil & gas activity index has not yet turned the corner though prices have improved, and until that happens we can expect the contraction in the general economy to continue, at least for the time being.
"A successful man is one who can lay a firm foundation with the bricks others have thrown at him."