June 26, 2018
Rising Oil Prices Pump Up Prospects For Permian Basin Towns
EPIC's Ryan Kellogg, a professor at the Harris School of Public Policy, weighs in on the effect of a recent surge in U.S. oil production on the American economy.
By Rebecca Elliott and Harriet Torryvia The Wall Street Journal
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.
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 $2.84 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.