On Tuesday, State Comptroller Glenn Hegar said that Texas is already in a recession. “I know that we are unfortunately in a recession,” said Hegar. “I just don’t know how deep it’s going to be.”
This is a stunning admission for a state that has become known for its strong economy. The entire nation is in serious economic trouble as the COVID-19 pandemic shuts down whole sectors of the economy, and as Texas is also being hammered by low oil prices.
Oil is a major part of Texas’ economy and is one of the reasons the Lone Star State emerged from the 2008 Great Recession relatively unscathed. However, oil prices that weren’t very high before the pandemic have crashed as a result of plummeting demand. To make matters worse, Russia and Saudi Arabia have engaged in a price war, increasing the supply to drive the price down further.
Normally, oil-producing nations would cut production in response to a decrease in demand, but when Russia and Saudi Arabia failed to reach an agreement on production cuts the Saudis decided to ramp up production to punish the Russians. Russia returned in kind. Hurting the U.S. shale industry may also be a motivator for Moscow.
Trump has repeatedly tried to get a deal between the two nations to stop the damage to the US oil industry, even announcing a deal that didn’t actually happen. However, the administration’s reluctance to cut US production has made the Saudis and Russians resistant to a truce.
On Thursday, oil prices rose as reports emerged of the Saudis and Russians agreeing to a historic production cut of 20 million barrels per day, but prices dipped again as traders waited for the details. Previously reported deals did not go through and the situation remains in flux, and there’s skepticism as to whether a production cut of that size is even feasible.
Even if Russia and Saudi Arabia end their price war, the pandemic has still seriously hampered demand as much of the world is stuck at home rather than driving and flying. And the effects on the global energy market may be permanent, with oil suffering even after COVID-19 passes.
While Texas’ wealth of oil has been a blessing in the past, the current situation is a reminder that it comes with vulnerabilities as well.
Photo: USDA NRCS Texas/ Wikimedia Commons