Texplainer: Do Falling Oil Prices Threaten the Budget?
Hey, Texplainer: I heard that oil prices are plunging – down more than 20 percent since June. Apparently Texas boomtowns aren’t yet panicking, but what does it mean for the state budget?
Texas nearly drowned in a sea of red ink after oil prices plummeted in the 1980s.
In 1987, with West Texas Intermediate oil, the U.S. benchmark, still trading below $20 per barrel, lawmakers faced one of the worst budget shortfalls in Texas history. They ultimately slashed spending and approved more than $5 billion in new taxes. At that time, oil and gas production taxes made up close ...
Comments (2)
WUSRPH
Good analysis...The best figure I have seen is that a $1 drop in the price of oil cuts the state's revenues by $40 million. The current budget was written when oil was at or close to $100 but increased production has offset that loss. The problem is how long does the price stay down and when does that begin to effect production. The economic impact comes from reduced production, less exploration and layoffs in the industry not just the price per barrel. Pickens says it could go to the $70s or lower. If it does not a lot of the "new production" fracking oil starts to become uneconomical and those wells may be shut down. There is no immediate danger. The question is what happens over the long term.
audrey fisher
As Conoco has been the first big oil firm to indicate that it is cutting back on operations, which include West Texas - it will only be a matter of time until, regardless of the budget that GOP will demand to cut spending - regardless of facts presented in this article.