Oil prices affect Basin

Ray Perryman said he won a couple bets when oil passed $65 a barrel last week.

The economist predicted oil would get back in the $65 to $70 this year back in February, just as prices were bottoming out.

The head of the Waco-based Perryman group, who lives in Odessa, said speculation was pushing prices below what they should be earlier this year, just as it pushed them to all-time highs last summer.

"At some point the market gets rational, then it gets irrational again," he said. "We happen to be at one of those points in time where it's acting like it should."

And spirits in the Permian Basin were a bit higher this past week than they were the last time oil reached $65 a barrel.

That would have been last October, as crude prices were taking a free fall, barely stopping in the $60 range on their way from a peak of $147.27 per barrel on July 11, 2008, to $31 Feb. 18.

But since then, prices have steadily increased.

"An increase in oil prices is always good for our local economy," said Kirk Edwards, president of MacLondon Royalty Co. "It's great news."

Prices rebounded a bit sooner than Perryman thought. But he said market anticipation of improving economic conditions helped the jump.

Still not all the news is good. While oil prices have increased, Edwards said natural gas prices are still "extremely depressed" due to a lack of demand from industry because of the global recession.

"There's quite a bit of glut in storage right now," he said.

Stalled gas prices have been devastating to the industry in much of Texas, including the area around Pecos County, Edwards said.

"There were 47 rigs around Fort Stockton alone," Edwards said. "That's been knocked down to three or four."

Perryman said excess natural gas should cause it to take at least a year for prices to rebound. But demand for a clean-burning fuel should eventually bring prices back up.

And while Permian Basin cities like Odessa, Andrews, Crane and Kermit produce much more oil than gas, Edwards said the loss of natural gas work is still affecting the service industry in Odessa and Midland.

Nonetheless, higher oil prices should give companies incentive to pick up activity in the area, Edwards said.

"I hope they stabilize more," he said. "A lot of the economists you see predicating stuff feel the $60 to $80 range is a range oil producers should be comfortable with the way the sector is right now."

Gary Vest, economic development director for the Odessa Chamber of Commerce, agreed that stabilization will be needed before the Permian Basin can return to the "boom" times seen just a year ago. While he said many independent producers were back to work, the major companies were still apprehensive.

"It's looking better," Vest said. "They're definitely optimistic."

Perryman said prices should remain largely in the $60 and $70 range for the rest of the year. But next year global demand should come back into play.

"As the economy begins to pick up, you'll see the price begin to pick up," he said.

But there should still be some swings along the way, Perryman said. Anything from a decision by the Organization of Petroleum Exporting Countries to a Gulf coast hurricane to unforeseen economic news can affect the price.

"You never know," he said. "It's a volatile market."

Edwards said it could take a while for employment in the Permian Basin to rebound. The jobless rate went from 2.8 percent in April 2008, the second lowest in the state, to 6.6 percent last month, which was 18th among the 25 metropolitan statistical areas measured by the Texas Workforce Commission.

The combination of Flint Hills closing its Odessa chemical plant and cutbacks by the oil service industry hit the economy hard, Edwards said. While about half the Flint Hills workers have found other jobs, the losses could affect the economy for a while.

"The Flint Hills plant really was a big blow to us locally - 400 to 500 out of a job," he said. "In a town this small, that really puts a big number out there."

Some producers were able to lock in good prices in the futures markets, Edwards said. But others stopped producing when oil hit $35 a barrel.

And Edwards said volatility could prevent some from jumping back in until they are more certain prices will stay up. And banks are remaining cautious about lending money.

"I would say the effect right now is more psychological," he said. "People were shocked (when prices dropped). There's been something of a wait and see attitude to see when prices are stable."