The pace of new development in the Permian Basin, a 55-million-acre stretch of territory in New Mexico and Texas, appears to be slowing. As a result, supporting industries are already taking a hit.
According to Bloomberg, the impact of the slowdown is clear in Permian hubs such as Midland/Odessa. Local radio stations are running fewer advertisements for oilpatch jobs, while home sales and hotel proceeds are sinking along with rig counts, the agency said.
Meanwhile, other sectors of the economy that provide support to oil and gas operators are feeling the pinch. For example, Caterpillar has cut its profit forecast for 2019, citing weaker demand for heavy equipment in West Texas, while Balchem Corp. is uncertain about the outlook for its products, which include chemicals used in hydraulic fracturing (fracking).
Jesse Thompson, a senior business economist at the Houston branch of the Federal Reserve Bank of Dallas, commented: “If you can’t wring out any costs savings then you’ve got to buy less stuff if you want to get your costs down, and that’s the phase we’re entering into. You’ve seen this work its way through on the manufacturing side as quickly if not more quickly than we saw in the rig count on the oilfield services side.”