Declining Energy Index Signals End of Growth Cycle

For only the second time in six years, the Oklahoma Energy Index declines as index dropped in October. The energy index fell a slight 0.2, to 267.8, down from September’s 268.
The only other decline came in January of 2007.
“The decline in the energy index most likely signals the end of what has been a six-year growth cycle in Oklahoma oil and natural gas industry,” said economist Karr Ingham, who compiles the energy index. “Falling oil and natural gas prices and a downturn in the national economy will have an impact on Oklahoma’s energy industry and the state as a whole.
Ingham said crude oil and natural gas prices peaked in the mid-summer, resulting in a corresponding peak in the value of Oklahoma crude oil and natural gas production. The average monthly price of crude oil surpassed $130 in June and July, and natural gas prices exceeded $12 in July.
Higher energy prices spurred increased oil and natural gas exploration, with the state’s rig count peaking at 212 in September. The monthly average rig count had been above 200 for seven straight months from March to September, but has now fallen to 175 for the first week in December.
“As Oklahomans, we should all hope the decline in the oil and gas prices is not long-term,” said John Pilkington, a Tulsa-based independent producer and chairman of the Oklahoma Independent Petroleum Association. “The state’s oil and natural gas industry has been a driving force behind Oklahoma’s economy, contributing more than $1 billion in tax revenue annually and creating tens of thousands of high-paying jobs.”
The state’s energy exploration and production sector in 2002 comprised about 6 percent of the total Oklahoma economy, Ingham said. By 2008, the industry’s share of the total state economy will be an estimated 15 percent. Ten years ago, the industry made up only about 3 percent of the total state economy.
Oklahoma’s oil and natural gas industry has driven growth in the overall state economy, and in recent years has served as a buffer between the Oklahoma economy and the economic slowdown at the national level. An industry contraction of some magnitude may well result in some erosion of that buffer, making the Oklahoma economy more susceptible to the effects of the national recession.
The unpredictability of energy markets and prices could make the energy index decline a short-term issue. Prices for oil and natural gas will increase when demand for energy products strengthens. The timing of that price recovery depends, Ingham said, on the depth and duration of the recession.
“It’s very likely the current decline in oil and natural gas prices is temporary,” Pilkington said. “Consumers are enjoying lower prices for gasoline at a time when they need it most. However, lower prices could be setting the stage for another rapid increase in prices in the future.”
The energy index is a comprehensive measure of the state’s oil and gas production economy established to track industry growth rates and cycles in one of the country’s most active and vibrant energy producing states. The OEI is a project of the Oklahoma Independent Petroleum Association.



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