Double Black Swan Hitting Texas Drags Down Rest of the U.S.

In all his years in the Texas oil patch, the billionaire Russell Gordy has never seen a bust like this.

The nightmarish collapse in crude prices that has accompanied the coronavirus pandemic is sinking fortunes across the Lone Star State, the nation’s second-largest economy. And not even Gordy, an oilman since 1973, can see a clear way out.

“Right now I’m paying people to take my oil,” he said. “I don’t see an end to this.”

From the “Energy Capital” of Houston to the shale center of Midland, the Texas oil-and-gas sector is sinking fast, heightening the pain for the broader U.S. economy. The state’s sheer size -- it accounts for 9% of total U.S. output -- means the shock here will reverberate on a national level.

If Texas can reopen successfully -- and moves to do so are already underway -- it could bolster the state’s GDP this quarter, but it also risks a false start and second shutdown amid a spike in cases and deaths that would prolong a recession there, according to Moody’s Analytics.

Texas is more than just oil. Services account for 70% of private-sector economic output in a state also known for manufacturing, health care, finance and technology. But it remains the No. 1 oil and gas producer in the U.S. Drilling all but ground to a halt there last month as the global coronavirus pandemic and the Saudi Arabia-Russia price war in March contributed to a glut so big the U.S. has almost run out of storage for excess crude.

Declining energy prices have helped the consumer-led U.S. economy in the past, but this year’s drop is likely to cut into investment and employment. Texas alone may lose 1.3 million jobs by June, according to estimates by economists at Moody’s Analytics.

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“The coronavirus crisis is putting an end to the U.S. shale-oil revolution,” said Thomas Costerg, senior U.S. economist at Pictet Wealth Management in Geneva. “Weakness in the domestic oil sector may spill into a broader downturn for Texas and also start to drag the rest of the U.S. with it.”

The Permian Basin, the world’s largest shale-oil field, stretches from West Texas into New Mexico and has played a major role in catapulting the U.S. into the top spot among global oil producers. With ample refineries and ports, Texas exports account for 20% of America’s total.