Brent oil price holds at $60
Early slowdown signs surface for US oil states post crude slump. Reuters

America's top oil producing states, which led the US economic recovery out of recession, are showing early signs of a slowdown in the wake of falling crude prices.

At least a dozen US energy firms have cut spending plans for 2015 in response to a more than 40% drop in crude prices since June this year.

An informal tally by Reuters, of announced plans for US drilling rig operations, showed that at least seven firms propose to cut the number of rigs they operate now by a total of over 50 in 2015. Each rig is estimated to employ 50-60 workers.

Bud Weinstein, an energy economist at Southern Methodist University in Dallas, said lower production will affect related industries such as transportation, cement, metal parts and food suppliers in states that rely on the jobs and the revenue that oil production provides.

It takes up to 2,000 truck trips to build one new well, Weinstein told Reuters.

States such as Texas, North Dakota, Alaska, Oklahoma and New Mexico are all likely to feel strains in 2015, Wells Fargo Securities' municipal analyst Roy Eappen warned in a recent report.

In Houston, Texas, where the first oil industry layoffs have been declared, property developers expect a decline of up to 12% in home sales next year.

Alaska's 2015 fiscal year budget revenue forecast will have to be lowered by almost $2bn, according to Fitch Ratings, because of the sharp drop in the state's forecast crude prices.

That will widen Alaska's budget gap to almost $3.4bn, Fitch noted in a recent report.

Meanwhile, Texas, Louisiana, Oklahoma and Arkansas reported weakened household sentiment in October, according to a report by Decision Analyst.

"The fact that the economic index is in decline...signals that the economy in these oil states is heading for an economic slowdown," Jerry Thomas, president of Decision Analyst, told Reuters

"A slowdown is coming, period. It's just a matter of time," said Karr Ingham, whose firm Ingham Economic Reporting monitors rig counts, permits and the oil economy in Texas.

Nationwide Impact

Slower growth in the oil states may not act as a drag on the US energy sector and on economic growth in the world's leading economy.

Voya Investment Management said in a 12 December note: "It's estimated that these lower gas prices translate into an average tax cut of $1,100 per family, which will drive disposable spending on other retail goods.

"Worries that the low energy prices will derail the energy sector and the U.S. economy are exaggerated as energy investment accounts for only about 1% of US growth, while consumer spending makes up 70%."


The number of well permits fell about 40% nationwide in November, according to industry data provider Drilling Info.

Texas-based Hercules Offshore, on 30 October, informed authorities of its plan to permanently lay off 324 workers in its Gulf of Mexico operations, owing to the anticipated closure of four rigs. The firm has 2,200 employees, according to regulatory filings.

North Dakota's economy grew almost 10% in 2013 and by a fifth in 2012 on the back of the US shale oil boom. Texas's economy expanded by 3.7% in 2013 and 7% in 2012,

By comparison, the US economy grew by 1.9% in 2013 and by 2.8% in 2012, according to World Bank data.