Boom In West Texas Oil Patch Lifts Wages, Prices
MIDLAND, Texas, May 1 (Reuters) - In West Texas, rising oil prices are fueling a sharp economic upswing, lifting employment and pay to records, driving up spending at hotels, restaurants, and car dealerships, and raising the cost of housing and other essentials.
This parched patch of land, under which lies the largest oil-producing rock formations in the United States, is the epicenter of a growth binge that shows just how tight the link remains between low unemployment, rising wages, and upward pricing pressure.
After a two-year crash, the price of crude began to recover in 2016 and pierced $60 a barrel early this year. But oil is still far cheaper than at the peak of the previous eight-year boom that began in 2006 North Dakota's Bakken oil patch and supercharged the city of Williston.
In the Permian basin, which stretches across West Texas and eastern New Mexico, the latest boom is being helped by advances in technology that allow drillers to extract much more from each acre.
"$60 is like the new $100," said Dallas Fed economist Michael Plante in a mid-April interview.
Breakeven costs are now as little as $25 per barrel, according to the Dallas Fed's most recent survey, so energy companies here no longer need $100 oil to make lots of money.
And Midland and its neighbor Odessa, the biggest towns for miles and the regional base for major oil producers in the Permian Basin, including Occidental Petroleum Corp, Chevron Corp, Apache Corp and Pioneer Natural Resources Co, are feeling the surge.
“It is a full-fledged boom,” says Dale Redman, chief executive of Propetro, a Midland, Texas, firm that supplies heavyduty horsepower to drill sites, where energy companies coax crude from the ground with sand and water.
He has tripled his workforce since early 2016, drawing workers from towns and cities hundreds of miles away. Over half of his 1,200 employees make more than $100,000. "What it has done is raised wages for all these folks. But housing and the cost of living has gone up as well."
To Midland Mayor Jerry Morales, "It’s a good story right now." He says the city is trying to keep up with the drop in housing inventory and rise in rents by approving new apartment complexes and working with developers to put in water and sewer pipes.
But as owner of two restaurants in town, including Gerardo's Casita, he sees the other side too.
"The biggest problem I face is low unemployment - finding workers," he said in a phone interview, adding that he is increasing pay every six months to keep staff from leaving for other jobs, and he is hiking his menu prices as well.
Investment by the energy sector, for years a drag on growth, has in recent quarters begun to add to it, U.S. government figures show. But oil is only about 2 percent of U.S. GDP, says Kilian Lutz an economics professor at the University of Michigan. That limits the effect of swings in the industry on the overall economy.
And though exports of oil have increased, helping to shrink the U.S. trade deficit in energy by half from fourth quarter 2016 to fourth quarter 2017, the improvement has had negligible impact on the much larger overall U.S. trade deficit, which grew during that period.
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