Small Towns Are Booming, Thanks to Rising Oil Prices

Jul 19, 2018 12:00 PM

shutterstock_559271578.jpgRebecca Elliot and Harriet Torry | Wall Street Journal | June 28, 2018 

HOBBS, N.M.— Oil is booming again in the Permian Basin, and so are the fortunes of this sun-bleached town.

Job postings for truckers and electricians cover billboards and chain-link fences lining the highways. Hotels are full of oil-field workers. The civic coffers are recovering from the recent oil bust. Hobbs, population 38,000, was able to put up $25 million in cash for its share of a glitzy new $63.5 million community recreation center. It sports basketball courts, a turf soccer field, waterslides, a lazy river and a three-story jungle gym.

“The money’s here,” says Don Bryant, who was born in Hobbs 53 years ago and owns a company that makes tools to repair oil wells. He thought about uprooting for mountainous Colorado, but decided there was more opportunity in Hobbs, near the Texas border.

From Texas to North Dakota, oil-producing regions of the U.S. are surging now that America is pumping record volumes of crude—10.9 million barrels a day during the second week of June, according to the Energy Information Administration. The leap from 9.4 million barrels a day a year ago is helping lift the U.S. economy as a whole, redefining the sweet spot at which oil prices are a tailwind for the country.

The cost of a barrel of crude has risen roughly 60% in the past year, to about $71 a barrel as of Tuesday, while gasoline prices have climbed roughly 27% over the same period. Yet the economy is still firing on all cylinders. The Organization of the Petroleum Exporting Countries recently agreed to boost production in an effort to keep prices from climbing still higher.

“Historically, America had a lot more consumers and a lot less producers, so on net it was bad for the American economy,” Mark Wright, research director for the Federal Reserve Bank of Minneapolis, said of pricier oil. “Now, we have a lot more producers, so as a consequence it’s a lot better.”

Higher oil prices are a burden on consumers, who have to pay more at the pump, and feed through the broader economy as businesses raise prices to cover higher manufacturing and transportation costs. But current crude prices aren’t especially high, historically speaking, and are far below a decade ago, when they topped out at a record $145 a barrel. Gasoline prices, averaging $2.85 a gallon, remain below the levels they averaged for most of the first half of this decade, when they topped $3.50 a gallon from 2011 to 2013.

If gasoline prices stay at current levels, people in the bottom half of the income distribution would lose about half the extra income gains from the $1.5 trillion tax cut that President Donald Trump signed into law late last year to higher pump prices, according to an analysis by the Penn Wharton Budget Model.

Broadly speaking, more-expensive crude is far less of an economic drag than it once was.

“On net, is the U.S. economy still better off with lower oil prices? The answer is yes, though clearly not to the same extent we used to be,” said Ryan Kellogg, a University of Chicago economist.

The upswing has helped spark an oil boom by making shale drilling profitable in more parts of the country. The U.S. exported a record amount of oil and fuel in April, $19.9 billion, which helped narrow the trade deficit, the Commerce Department said this month.

Texas has flourished, closing last year as the nation’s fastest-growing economy, with fourth quarter seasonally adjusted growth of 5.2%.

In New Mexico, which has struggled economically in recent years, the economy grew 0.8% last year after declining 0.1% in 2016, when oil prices slid below $30 a barrel. State revenue, meanwhile, soared 14.5% through March, thanks to increased oil and gas activity, according to the state legislative finance committee.

That is benefiting places like Hobbs, which long has ridden the booms and busts of oil.

More drilling in the Permian has meant more business for Mr. Bryant and his wife, Donna Bryant, who burned through all but $500 in personal savings during the recent downturn. They were able to begin saving about $1,500 a month again starting in January.

“We knew it would come back. We just didn’t know when,” said Ms. Bryant, 52.

With the oil boom comes a surge of company vehicles, helping area mechanics and oil change companies. Workers with more disposable income face lines for breakfast at places like the Iron Skillet Cafe, and the promise of higher pay is luring families to town.

Nabil Tapia’s family moved to Hobbs in May after her husband, an electrician, was offered $30 an hour—plus a per diem of $100—to work at a natural-gas plant. He was earning less than a third as much in South Texas.

Demand for housing in the Permian oil field has risen so quickly that availability is tight and rents are rising. Ms. Tapia’s family had trouble finding a suitable place to live and ended up sharing a recreational vehicle in Hobbs.

“With what we’re getting now, we can easily plan for what we want to do,” said Ms. Tapia, 30, who has begun saving for a down payment on a house. “There’s no, ‘Well, I can’t get this because I don’t have the money for it.’ ”