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Oil and the Texas Markets

Posted by: In: Newsletter 21 Jan 2015 Comments: 0

By Jim McAlister IV, President & Chief Executive Officer

There’s been a lot of talk in the news recently debating the drop in oil prices and its impact on Texas’ real estate markets.

There are some outlets that tell us that Texas will prosper even further as it is THE energy capital of the world (not just in oil), while other less fortunate secondary locations around the country will be forced to close up shop. Other groups believe that the Texas miracle of prosperity, which leads the nation in population and job growth, is officially over.

There’s another perspective I would like to share that I think gets it just right. The Lone Star State has done a great job diversifying its economy. The “sweet spot” of $55 – $90/bbl oil is great for the economy as a whole and the Texas shale plays are some of the cheapest in the world to produce and turn a profit. While the drop in the price of oil may slow down this very robust Texas economy, it will not halt it all altogether.

The economists at Metrostudy recently completed a very informative presentation on the “real” impact of lower oil prices to the Texas economy which drew a number of excellent takeaways:

 

1. Texas/Houston employment and job growth are well diversified over numerous sectors.

 

Oil & the Texas Markets - Graph 1

2. The “sweet spot” for optimal oil prices on the housing economy is in the $55 – $90/bbl range.

Oil & the Texas Markets - Graph 2

3. OPEC nations need much higher prices than today’s levels to profit and Texas has some of the cheapest sources to produce.

Oil & the Texas Markets - Graph 3

 

In conclusion, the oil futures market is pricing oil well within the above “sweet spot” over the next few years. The coming months should prove to be an excellent buying opportunity for Rockspring Capital. While others focus on the headlines and hesitate, we will continue our disciplined, research-driven investment approach and move quickly with our all-cash method to secure optimally located properties that become available. The team here is looking forward to 2015.

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