Pump prices put squeeze on economy

UPDATED: Injured football player ‘responding’, but still in critical condition
September 30, 2015
Alfreda Richoux
October 6, 2015
UPDATED: Injured football player ‘responding’, but still in critical condition
September 30, 2015
Alfreda Richoux
October 6, 2015

Gas prices are as low as they have been in a decade, and oil-producing areas are feeling the squeeze.

This year’s Labor Day gas prices are the lowest since 2004, according to AAA spokesman Don Redman. He says the low gas prices are related to the steep drop in crude oil prices on the global market.

The market price for crude has collapsed over the last year. On Sept. 5 of last year, a barrel of crude sold for $93.29, according to the West Texas Intermediate, the U.S. benchmark. On Sept. 4 this year, that same index pegged a barrel at $46.05.

Redman says the downward trend in crude is related to a global decrease in demand, as developing economies struggle to keep pace with their previous growth.

“We’re looking at the slowdown of the global economy, particularly China,” he said.

According to Redman, in the first week of September the statewide price of gasoline was down to $2.12 per gallon. He said that was about $1.10 cheaper than this time last year.

While the low price of gas is great for pocketbook of the person at the pump, areas dependent on the resources’ economy have a different outlook. Places reliant on oil companies for local jobs and tax revenues, are facing economic constraints.

“Obviously these low prices are a boon for the family economy, but oil-producing states face a different reality,” Redman said.

Terrebonne Parish is just one of these areas adversely affected by the oil market’s slowdown. In 2014, Terrebonne boasted the lowest unemployment rate in the state. While severe unemployment has not struck so far, job growth has been slowing over the last few years, according to Dr. James A. Richardson, of LSU’s economics department.

Richardson co-authors the Louisiana Economic Outlook each year, and he points to recent figures highlighting the slowdown in new jobs in the Houma-Thibodaux Metropolitan Statistical Area.

“In 2012, the [Houma-Thibodaux] economy gained almost 3,000 net new jobs; in 2013, almost 3,800 net new jobs; but in 2014, just about 1,100. The oil and gas industry has certainly been a driver in this slowdown,” Richardson said.

With the price of oil dropping drastically in the past year, revenues for Terrebonne have fallen accordingly. The parish just adjusted its 2015 budget to account for a $1.9 million decline in mineral royalties from its original estimation of $5 million. Terrebonne Parish President Michel Claudet ties the dip to the oil market.

“We used to receive royalties based on $100 barrels of oil, now we have $40 barrels of oil,” he said.

As well as a decrease in royalties directly from the company, Terrebonne has also seen a drop in sales tax revenue. With the price of their product so low, oil companies have started to cut back on costs, such as cutting back hours and even layoffs. Sales tax revenue in September fell 15 percent from the previous month. The decrease in revenues and shaky outlook for the oil market gave a credit ratings agency enough reason to put Terrebonne on a credit watch list.

The parish serves as headquarters for several offshore oil and gas companies and faces economic-related risks. The recent decline in oil prices will likely affect local employment, sales tax collections and home prices. Any related state funding decline could compound the impact, as cities and parishes in Louisiana receive a portion of state severance taxes and royalties. For Terrebonne, these two sources total $5.9 million in the fiscal 2015 budget, or roughly 25 percent of general fund revenues. And, at nearly $41 million, sales taxes represented more than 35 percent of budgeted parish governmental revenues in fiscal 2015. Property tax millage rates can be increased to counter tax base losses, but any hike in a local sales tax rate must be approved by voters.

Richardson that oil prices will be in the $50 to $60 range for the next few years. He warns to not expect oil to return to the $80-$100 range anytime soon. He said that aside from a slowdown in demand, countries are getting smarter about how they use what they have.

“The world is showing it has substantial resources and we are all becoming more efficient users of oil and gas,” Richardson said.

AAA’s Redman expects the price at the pump to go even lower before the end of the year. Experts are forecasting a national average price of $2 per gallon in December, which translates to about $1.90 in Louisiana. However, Redman says that forecasts cannot account for drastic changes in the market.

“When we make these forecasts, it’s based on everything running smoothly. If there’s a significant disruption, there will probably be upward prices,” Redman said.

Richardson concurs, saying that the oil industry tries to prepare for a huge shift in circumstances.

“There will always be price volatility with oil and natural gas. The oil industry understands this and knows how to cope with it-some companies will be better at coping than others,” he said.

Richardson said the Houma-Thibodaux region is certainly driven by the energy sector, and it is very hard to change the basic driver of a local economy. He predicts the current malaise in oil markets to affect the area, but does not predict doom.

“The area will not grow like it has been growing and it may decline depending on the energy markets over the next several years,” Richardson said. “But this area is connected to the Gulf of Mexico activity and that will not dry up. For that reason, [Houma-Thibodaux] may have a slowdown or perhaps no growth, but it will come back.”

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