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Permian Basin Economic Indicators

Economic Indicators
December 21, 2017

Employment in the Permian Basin inched up in October while the unemployment rate fell. In November, Permian Basin production continued to expand while the rig count remained relatively stable. Home prices remain elevated as housing inventories continue to tighten.

Labor Market

Despite a contraction in the rig count during October, employment in Midland–Odessa expanded modestly to 163,900 jobs (Chart 1). Overall, the area is growing at a 5.6 percent year-to-date annualized rate, adding over 7,000 jobs since December 2016. A potential tailwind is the company outlook index from the third-quarter Dallas Fed Energy Survey. The index rose from 20.3 in the second quarter to 28.2 while the uncertainty about the outlook decreased. This could be a hopeful sign for increased employment in the Permian.

Chart 1

The unemployment rate in the Permian Basin dropped to 2.7 percent in October—reaching the pre-energy-bust low seen in December 2014. December 2014 is also when employment in the Permian was at its peak.

Energy

Oil Production Continues to Grow, Rig Count Stays Stable

The Permian Basin’s rig count inched up to 388 in November, an increase of seven rigs (Chart 2). The rig count has shown very little fluctuation in either direction since September. Oil production increased by 70,000 barrels per day (b/d) between October and November to about 2.7 million b/d. Despite a relatively stable rig count, production is staying on its accelerated path. Between January and November, month-over-month production growth averaged 2.1 percent—almost twice the average monthly growth rate in 2016. The Energy Information Administration is estimating that the Permian Basin will close out the year producing 2.7 million b/d during December 2017. Increases in the company outlook index combined with an increase in the price forecast in the third-quarter Dallas Fed Energy Survey provide some optimism for continued expansion in the Permian.

Chart 2

WTI Spot Price Rises to Two-Year High

The average price per barrel of West Texas Intermediate (WTI) crude oil increased by over $5 to $56.64 in November—the highest price in over two years (Chart 3). The increase in WTI came as OPEC agreed to extend production cuts through 2018 and signs of a drawdown in Organization for Economic Cooperation and Development global inventories continued to appear. The November average is $10 above the $46 Permian Basin breakeven price reported in the first quarter 2017 Dallas Fed Energy Survey.

Chart 3

Permian Basin DUC Count Rises

While the number of rigs in the Permian Basin is stable, the number of drilled but uncompleted wells (DUCs) continued to expand at a swift pace in November. The Permian Basin’s DUC count has more than doubled since December 2016 as the count in the rest of the U.S. has only grown 14 percent (Chart 4). The Permian Basin’s DUC count was 2,613 while the count for the U.S. excluding the Permian Basin was about 4,741.

Chart 4

Housing

Housing Inventories Continue to Fall

Housing inventories continued to drop in October indicating continued tightness in the Permian Basin’s housing market. Inventories are down to less than four months’ supply in Odessa while Midland’s remains around 2.3 months (Chart 5). The seasonally adjusted six-month moving average for total listings in the area was 862 homes in October, a year-over-year decrease of 25 percent. October’s moving average was the lowest in over two years.

Chart 5

Home Sales and Prices Remain Elevated

The tight housing market is further evidenced by elevated home sales and prices in the Permian. Despite prices falling slightly below $260,000 during October, they remain elevated—just 3 percent below their peak in November 2014 (Chart 6). The Federal Housing Finance Agency’s House Price Index (FHFA HPI) rose in Midland and Odessa during third quarter 2017. Midland’s FHFA HPI reached 231, just over 7 percent higher than third quarter 2016. Though the index was up in Odessa, the price increase has been slower, only moving 1.3 percent over the same period. Home sales in the Permian moved up to 333 during October—up 23 percent since the beginning of the year.

Chart 6

NOTES: Data are for the Midland–Odessa metropolitan statistical area (Martin, Midland and Ector counties), except for energy data, which cover the 55 counties in West Texas and southern New Mexico that make up the Permian Basin region. Data may not match previously published numbers due to revisions.

About Permian Basin Economic Indicators

Questions can be addressed to Dylan Szeto at Dylan.Szeto@dal.frb.org. Permian Basin Economic Indicators is released on the third Wednesday of every month.

Economic Indicators