Dr. Robert W. (Bill) Gilmer delivered a very informative message in late March about Houston’s economy, particularly how the price of oil affects Houston’s upstream companies on its west side and the downstream industry on its east side, before a large mid-day gathering of members of the Bay Area Houston Economic Partnership. Gilmer is the director of the Institute for Regional Forecasting in the University of Houston’s Bauer College of Business.
Introducing his presentation, "Oil in Freefall! And the Economic Outlook for Houston,” Gilmer noted how the price of oil is just about as predictable as the formation of a sinkhole, as any Houstonian can confirm.
During the last 52 weeks, the price of light crude went from a high of $107.03 per barrel to a low of $43.46 per barrel (according to CNN Money) with a lot of stops in between. However, he cautioned everyone saying, "In 1982 there was an 80 percent decline in the rig count and one in seven jobs disappeared in Houston during that time period. This is not 1982.”
Gilmer did predict that oil prices could easily go below $40 per barrel with more than a 50 percent cut in the rig count. He said, "We are facing a significant downturn in drilling, which seems to be on the usual 12 to 18 month track. Taken alone it would easily bring a mild recession to Houston.” He noted, however, that the bottom would probably be hit late this year with an upswing in drilling beginning and prices returning to $60 per barrel early next year. In the long run, though, oil will continue to be a cyclical and slower growing industry.
On a positive note, Gilmer reported that Houston’s economy and statistics all continue to look great. He then presented various scenarios on how cuts in exploration and production could affect Houston.
The big news is that at the other end of the oil industry on the east side of town there is an unprecedented construction boom underway in petrochemicals and liquid natural gas export facilities.
The east side is booming while the white-collar west side is feeling much of the pain of the drilling downturn. Gilmer said that taken together they mean several years of modest growth instead of near-term recession.
He concluded, "West Houston will lag for the next couple of years, waiting for oil prices to rise and upstream energy to recover, but by 2017, the construction boom will peak, the number of construction workers will decline rapidly, and recovery of upstream will again drive jobs. West Houston will return to the economic driver’s seat as the price of oil recovers.”
The details of Gilmer’s economic outlook, which include much more than space allows in this article, can be seen in his presentation, which is located on BAHEP’s website at www.bayareahouston.com.
Bill Gilmer, Ph.D.