Is the Texas economy fixing to implode?

The so-called Texas Miracle, whether under Rick Perry's name or Greg Abbott's, has always been based on two things:

1. Robust oil profits;
2. Lots of cheap immigration.

Well, wingnuts of the Dan Patrick stripe, along with Trump federally, have gnawed away at the second.

And now, the first looks in trouble. (As does the smaller scale Permian-driven "New Mexico miracle"; see end of post for more.)

Non-coronavirus bad news for the Texas economy popped up Friday. Talks between Russia and Saudi Arabia for extending the OPEC+ expanded oil producers agreement broke down, and oil prices tanked along with it. WTI had been below $50/bbl before that, making the great majority of fracking wells in the Permian Basin unprofitable. We're now officially in Ponzi scheme territory, where the only reason companies will drill is fear of losing overvalued leases that cannibalize each other as is, as I've blogged about in recent weeks. Whether it will get as bad as what Aubrey McClendon inflicted on Chesapeake in the gas biz remains to be seen. It's not likely, but it's certainly possible.

And, at end of biz on Friday? West Texas Intermediate was at $42/bbl. And, it got worse over the weekend. The Saudis, after initial indications that they couldn't afford to fight the Russians, started doing so, first with a price splash. By last night, WTI was trading around $30 a barrel. There will be some bounce-back, to be sure. But, no way it gets back above $45 for some time.

And even that isn't likely any time close to soon. Goddam Sachs said oil could drop into the $20s, at least with spot dips, and its prediction is that WTI will remain in the $30s for the rest of the second and third quarters.

“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” the firm added.

In addition, the Dallas Fed has already reported that hiring is flat out in the Permian. And, related to that, that rents have finally flattened.

Russia made clear, per that first link, that it wants this. Remember, the Saudis tried to force such a collapse a few years ago under MBS' pushing, but couldn't pull it off. Russia is less dependent on oil as a somewhat smaller sector of its economy and can take lower oil prices.

Update, Monday evening —

Oh, goodie! We get to read Texas Comptroller Glenn Hegar give us some PR spin a passel of lies about the state of the Texas economy:

“The fundamentals of the Texas economy remain strong. The agency is monitoring weakness in financial markets, including commodities and energy markets. We have been tracking revenues carefully since markets began to soften. 

 "Certainly, Texas has exposure if oil prices remain depressed for a sustained period of time, and slowdowns in economic activity related to the COVID-19 outbreak could also be a headwind. We are still only six months into the current budget cycle, however, and it is too early to tell with certainty how current fluctuations will impact long-term economic performance and state revenues."

Yeah, nice try, Glenn. With half the new oil in the Permian actually being halfway to condensate, and between that and increasing water cuts, half the new drilling in the Permian being underwater, this would be a lie even before last Friday. OilPrice.com is predicting a daily surplus of 3 million barrels by the end of the second quarter.

That said, the amount of trouble oil majors as well as oil minors already face over economically unviable fracking says that the Saudis three years or whatever ago actually pulled it off more than they knew. Don't think the Russians don't know that, as well.

There's also the geopolitical angle. As it looks to extend its reach in Syria in particular and the Middle East in general (Yemen, anybody?) Putin wouldn't mind weakening Saudi Aramco, and some of the government it supports, just as much as ExxonMobil. Or it wouldn't mind continuing to help the legitimate government of Venezuela.

The flip side is that nationally, Larry Kudlow has already made murmurings of selective business help in the country's economy as needed. This also, of course, shows that other than in libertarian wet dreams, and the public speaking out of them, that the Platonic idea of capitalism simply doesn't exist.

I guess a silver lining is that a slowdown in drilling, per that second link, will delay Peak Permian by a couple of months. That said, at the fringes of the Permian, reinforcing what I said about companies seeking out marginal drilling, Apache is withdrawing from the Balmorhea area after claiming it had the secret sauce to find deposits in the Alpine formation there.

Another silver lining? This is possibly the best refudiation yet of #TheResistance that claims Trump is and has been colluding with Russia.

Update, March 30: DeSmog Blog now notes that many refineries are likely to be shuttering in weeks ahead. The typical refinery can't cut production below about 65 percent without shutting down whole units. The problem is a complex one, and more complex than in previous hydrocarbon gluts. A number of these refineries are on the Texas Gulf Coast, including one in Baytown that Exxon has already announced it is shutting.

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And, despite Joe Monahan's denialism, the problems (and rightful concern) are spreading to New Mexico. Update: The state has officially banned public gatherings of more than 100 people.