Texas oil and gas producers began to rein in drilling and development activity in April as falling crude oil prices fed anxiety over growing economic uncertainty, possibly portending a halt to a 28-month-long expansion of the Texas upstream oil and gas economy.
"The average monthly posted price for crude oil in Texas was down in April year-over-year for the first time since October 2009," said Karr Ingham, the economist who created the Texas Petro Index (TPI) and updates it monthly. "As a result, the TPI for April was unchanged from March to April at 271.0, the first time since December 2009 the index did not post a month-to-month increase."
Ingham said a retreat from higher crude prices that prevailed earlier in 2012 was not entirely unexpected and even desirable from a consumer point of view, but the rate of oil-price decline had caught producers by surprise. Repercussions of European debt woes and economic slowdown in Asia on the U.S. economy in the remainder of 2012 are weighing heavily on crude oil markets, fueling lingering uncertainty about underlying support for crude oil pricing, he added.
"Producers don't have a solid sense about where the bottom may be, and that is making them a bit gun-shy and, perhaps, trigger-happy to curtail exploration and development drilling," Ingham said. "The TPI is designed to be on the leading edge of trend changes in the state's oil and gas exploration and production economy.
"So even though some indicators continued to increase through April, it is certainly possible we're on the cusp of a slowdown in upstream oil and gas activity."
A composite index based upon a comprehensive group of upstream economic indicators, the Texas Petro Index in April was 271.0--following a revision by Ingham in the method used to calculate the index--marking the first time since December 2009 that the TPI did not post a month-to-month increase. Based upon the new method of calculation, the TPI reached a low ebb of 188.5 in December 2009, following a peak of 287.8 in October 2008.
Among leading TPI indicators during April:
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