The Odessa Economic Index took a huge leap upward in April, increasing by over six full points from the March OEI, by far the largest single monthly increase in the history of the index which is based at 100.0 in January 1996. The index improved to 237.4 in April up from 231.2 in March, and up 22.2% from the April 2017 OEI of 194.2. The index also soared into new record territory in April easily surpassing its previous high mark of 231.9 achieved in January 2015.
It is easy to see why. The numbers are simply spectacular up and down the chart. General spending is over 40% higher compared to year-ago levels, and auto spending in April was more than double last year’s total. Hotel/motel activity is double the monthly and year-to-date totals from 2017, building permit valuations were 60% higher, and new housing construction permits were up by 175%. Existing home sales were up by over 60%, the average price of those sales was up by a whopping 21%, and the real dollar value of those sales was very nearly double the April 2017 total. Payroll employment is posting 5-6% year-over-year increases and the unemployment rate is down by nearly 40% thus far in 2018. Through April about 7,100 jobs have been added to the Odessa economy since troughing in mid-2016.
General spending, auto spending, and hotel/motel spending, and airport passenger boardings are all at record levels for April and for the year-to-date, as are home building and existing home sales and prices. Building permit valuations continue to lag behind previous all-time records, along with payroll employment and the unemployment rate though the employment situation indicators are rapidly closing that gap.
The Texas Permian Basin Petroleum Index popped another 7-point (plus) increase in April, rising to 310.8 for the month, up from a revised 303.4 in March, and up by 28% compared to the April 2017 TPBPI. The index was revised upward due to an upward revision in Midland-Odessa oil & gas industry employment estimates based on newly released industry employment data from the Texas Workforce Commission. Continued upward revisions to Texas Permian crude oil and natural gas production also helped push the index higher in prior months.
Oil and gas industry employment in Midland-Odessa is estimated by taking the total monthly estimate for the “Mining, Logging, and Construction” employment sector and carving out the total that is mining only, which in the Permian Basin means oil and gas employment. A Texas Workforce Commission data set called the Quarterly Census of Employment and Wages tells us how many payroll mining jobs exist each quarter, and that number is used to estimate the share of “mining, logging, and construction jobs” that are oil and gas-related. That quarterly data was just updated through the fourth quarter 2017, which means we have updated information with which to estimate monthly oil and gas employment in the combined metro area. The updated data suggests oil and gas employment is comprising an ever-larger share of that total, meaning oil and gas employment was revised upward for much of 2017 and thus far in 2018.
Estimated payroll oil and gas jobs in the Midland-Odessa metro area totaled about 39,640 in April, an increase of nearly 34% compared to April 2017. That means about 14,100 jobs have been added to metro area oil and gas employment since the cyclical low point in 2016, an increase of about 55% since that time. In Odessa alone, of the over 7,000 total jobs added thus far in the current expansion nearly 4,200 of those are direct oil and gas jobs.
The Texas Permian Basin rig count continues to climb at 358 on average for the month of April (RRC districts 7C, 8, and 8A) and 374 this past week. Baker Hughes pegs the basin-wide rig count at an average 449 in April, the highest since January 2015. The number of drilling permits issued through April is the highest since 2013 and is up by about 19% compared to the first four months of a year ago. Crude oil well completions, a lagging indicator, are climbing rapidly and are outpacing year-ago levels by over 60%.
Adding rigs, permits, completions, and employees means production growth at a faster clip and that is exactly what is occurring. Estimated 7C/8/8A crude oil production was up by over 22% in April compared to April 2017 and is up by nearly 20% for the year-to-date. And, of course, these numbers may well be revised yet further upward in the coming months. US Energy Information Agency estimates suggest Permian-wide (including New Mexico) crude oil production surpassed 3 million barrels per day in March and expanded to 3.14 million bpd in April. Estimated daily production in Texas RRC districts 7C, 8, and 8A stands at about 2.24 million bpd in April.
The West Texas Intermediate posted price reached $62.80 on average in April, the highest monthly average since November 2014. However, that is not what crude oil is currently fetching in the Permian due to the ever-widening discount - $15/bbl or more – between posted WTI and localized prices currently paid to Permian producers. There is a glut, pure and simple, because more crude oil is presently being produced in the Permian than can be moved out of the Permian to the marketplace. Think of it as a localized oversupply, and oversupply always pushes prices downward. It does so in order to send the signal to producers to scale back on production, and while that may ultimately happen, production clearly continues to climb at a rapid pace. The likely outcome of that production growth is likely to be yet lower prices (a wider discount) until falling local prices begin to slow production or takeaway capacity is added – however, that is no quick fix and at the earliest it will be well into 2019 before the problem can be alleviated to any significant degree.
Meanwhile the Odessa general economy is simply on fire. The current expansion has now been in place for 18 months (and counting) through April, and this milestone, a new record in the Odessa Economic Index, was achieved several months ahead of the schedule that was anticipated given the pace of growth a few months ago.
