Falling Prices Drive Down Energy Index
Falling crude oil prices continue to take their toll on the Oklahoma Energy Index (OEI) and the industry as a whole, pointing to a weakening Oklahoma economy.
Crude oil and natural gas monthly average spot prices were down 20.4 percent and 14.1 percent respectively from one month ago and have fallen by 50 percent and 36.5 percent from the previous year.
Those decreased prices have put a significant damper on oilfield activity. Employment contractions have been modest — falling by 0.5 percent in primary exploration and production employment and 0.6 percent in oil and gas support employment — but rapidly decreasing drilling activity will likely push unemployment numbers higher. The number of drilling rigs fell by 5.3 percent from the previous month and that slowdown in drilling is expected to continue well into March.
“We are seeing the industry make the necessary adjustments required in this price environment,” said Chris Mostek, Senior Vice President of Energy Lending for Bank SNB. “While it appears there will still be several tough months ahead, many companies have responded more quickly than in the 2008-2009 downturn, so we remain optimistic about the long-term health of the industry.”
The energy index is a comprehensive measure of the state’s oil and natural gas production economy established to track industry growth rates and cycles in one of the country’s most active and vibrant energy-producing states. The OEI is a joint project of the Oklahoma Independent Petroleum Association (OIPA), Bank SNB and the Steven C. Agee Economic Research and Policy Institute.
The index of oil and natural gas industry activity fell to 237.99 using data collected in January, an 8.8 percent decrease from the previous month and the lowest energy index reading in nearly three years.
“Movements in the Oklahoma Energy Index tend to precede broader economic weakness,” said Dr. Russell Evans, executive director of the Steven C. Agee Economic Research and Policy Institute. “Successive months of industry contraction coupled with rig activity that is more than 25 percent below last fall’s peak portend a wave of economic weakness moving into the state’s economy. All that remains to be seen is the severity of the consequences.”
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