Oil prices plunged to their lowest level since at least the 1980s on Monday when the cost for a barrel of crude dropped below $1.
The coronavirus pandemic has kept most of the world at home and not using fuel to commute or travel, which has led to a devastating decline in demand. The price of oil has crashed at a rapid rate since it began the year in the $60 range, representing a drop of more than 90% in just three months. The price of oil had been hovering around $20 a barrel recently.
Monday's drop in prices is expected to compound the economic and budget blows from the world staying at home.
The state was already headed for a recession before Monday’s drop in prices. Texas is the nation’s top oil-producing state, so its economy and budget are highly sensitive to oil prices. When production slows here, employment and tax revenues decline, and budget cuts at the state and local levels often follow.
Oil prices plummeted in early March to what was, at the time, their lowest point in decades after Saudi Arabia declared a price war on Russia. Matters have only worsened because almost no one wants to buy oil and gas these days. People have not been flying, commuting or traveling due to the novel coronavirus pandemic that has kept millions of people at home, and it has led small, independent oil producers throughout the state to make difficult choices about their companies.
Earlier this month, a large group of oil-producing countries, including Saudi Arabia, Russia and the United States, eventually agreed to cut 9.7 million barrels of oil per day from the global oil market. Analysts have said more cuts will be needed to keep pace with the devastating drop in demand.
The Texas Railroad Commission, which regulates the state’s oil and gas industry, heard more than 11 hours of testimony last week from dozens of energy executives, analysts and critics who disagreed about whether the state agency should limit production here.
More than 20,000 people from at least 86 countries and 49 states watched the meeting during which Commissioner Christi Craddick said even if the agency were to limit production, she wasn’t sure how the cuts would be enforced.
Texas Comptroller Glenn Hegar, the state’s chief revenue estimator, predicted last year that oil prices would hover in the low- to mid-$50-per-barrel range through the latter half of 2021. Dale Craymer, president of the Texas Taxpayers and Research Association, has previously estimated that the state loses $85 million a year for every $1 drop in oil prices.
The most recent sales tax figures available don’t yet show the massive dip in revenues that are expected from state and local officials shuttering businesses or limiting operations in mid-March to stop the spread of the virus that causes the COVID-19 disease.
Bars, restaurants and retail stores statewide have reduced operations or closed completely. And as social distancing has roiled the economy for weeks, companies large and small have reduced employees’ hours, furloughed staffers or laid off workers.
More than 1 million Texans have applied for unemployment insurance since mid-March, including 273,567 during the week ending April 11 and countless more people are still struggling to file claims as they wait to feel the impact after the Texas Workforce Commission expanded its staff, added call centers and increased its number of servers.
The March unemployment rate for Texas, 4.7%, doesn’t reflect all the job losses. Analysts cautioned this is because Friday’s release of the unemployment rate is based on March data, which predated the widespread closures and layoffs that escalated later. Before Monday’s drop in oil prices, analysts were predicting the actual rate of jobless Texans is likely greater than 10%, which could be a record high for the state.