The West Texas housing market is tight and wages are at their highest level in 12 years, as production continues to rise from the hottest play in the world, the Permian Basin, the Federal Reserve Bank of Dallas.
The Dallas Fed, as it is known, in its latest monthly installment of the Permian Basin Economic Indicators said production from the basin is growing while the rig count remains steady. Wages were well above the Texas average in December, and the tight housing market has led to strong home price appreciation, economists said.
Permian oil production is estimated to have reached 3.94 million b/d in January, up from December’s 3.87 million b/d. Meanwhile, the rig count fell to 473 in February from 484 in January, down from its most recent peak of 493 in November.
West Texas Intermediate oil prices recovered somewhat in February, averaging $54.45/bbl from $51.38 in January. According to the latest Dallas Fed Energy Survey, prices are expected to be near $59.97 by the end of 2019.
The Permian’s number of drilled but uncompleted wells (DUC) continued to rise in January, totaling 4,170, up 5.2% from December.
“DUCs outside of the Permian advanced at a much slower pace,” economists said. “The Permian Basin now contains just under half of the total DUCs in the U.S.”
Unlike Waha natural gas prices, West Texas Intermediate (WTI) oil prices have gained steam relative to benchmarks, thanks to the addition of Plains All American’s Sunrise crude expansion, which recently increased oil takeaway from the Permian by around 300,000-350,000 b/d, economists said.
The announced conversion by Enterprise Product Partners LP of the Seminole natural gas liquids pipeline to carry crude also was scheduled to start up before the end of March.
“The additional takeaway capacity allowed Midland to trade at a slight premium to WTI priced in Cushing, OK, in February, and it substantially narrowed the gap between Midland and Louisiana Light Sweet crude on the Gulf Coast.”
Meanwhile, the basin’s two biggest cities, aka the Midland-Odessa metropolitan statistical area, are reporting higher wages and the tightest housing market in the state.
Odessa private sector average weekly wages were $1,141 in December, “rising to their highest level since 2007 and surpassing Midland’s figure of $1,106,” economists said. “Odessa wages rose 13% in 2018, compared with a 3% decline in Midland earnings and a 0.4% increase in Texas wages.”
During January, Odessa’s months of housing inventory stood at 1.6, below Midland’s 1.7 months and well below the Texas market’s 3.5 months. Inventories in the Permian Basin have been below two months since February 2018.
Housing prices also continue to rise in the relatively remote area of Texas. During the final three months of last year, Odessa home prices jumped 16.2% year/year, while Midland prices were up 11.6%.
“Home price gains in the Permian are well above the state’s 6.3% increase in 2018,” economists said.
Data are for the Midland-Odessa metropolitan statistical area includes Martin, Midland and Ector counties, except for energy data, which cover the 55 counties in West Texas and southern New Mexico that make up the Permian Basin region.