Tumbling oil prices will have broad regional impacts on the U.S. economy, hitting states far afield from Texas, which was the engine of a national energy boom during the past decade.
Wyoming, Alaska, Oklahoma, North Dakota and West Virginia all depend more on mining and energy extraction than the Lone Star state, according to Wall Street Journal calculations of state economic output data.
Ohio and Pennsylvania increased their exposures to energy in the past decade, albeit from low levels, as they jumped on the fracking revolution that tapped previously unused shale reserves, primarily for natural gas.
The nation already faces historic declines in economic output and employment because of the social-distancing measures and business closures adopted to stem the spread of the novel coronavirus. Like Texas, other energy-driven states now face an added blow from plunging oil prices, one that might outlast the pandemic shock.
“It will also remain a headwind going into 2021 as broader economic conditions start to improve,” said Karl Kuykendall, a regional economist with IHS Markit, an economic research firm.
The most actively traded U.S. contracts for crude oil—the West Texas Intermediate futures for delivery of petroleum in June—dropped 43% to $11.57 a barrel Tuesday, a day after some contracts for the U.S. crude benchmark dropped below zero for the first time in history. Oil owners were effectively paying others to take it off their hands and store it.
Pain in the oil industry will likely ripple through other parts of those state economies. People who lose jobs in energy will spend less, with spillovers on housing markets, service industries and state coffers.
Wyoming depends on mining and energy production for 16.4% of all state economic output, far more than Texas with 7.8% after spending much of the past three decades diversifying into new industries, including technology. Alaska is at 15.3% of output, Oklahoma at 11.7% and North Dakota at 10.3%.
“It’s bleak in Wyoming. There’s no better way to describe it right now,” said Pete Obermueller, president of the Petroleum Association of Wyoming.
Wyoming had been relying on steady oil revenue to shift away from coal production, which has been in decline, and also falling natural gas prices.
Now, Mr. Obermueller said there were just six oil rigs operating in the state, down from 30 about a year ago. The number could reach zero by June. He estimated at least 1,700 jobs related to the oil industry had already been lost.
According to Wyoming’s petroleum industry group, taxes and royalties from oil and gas production contributed about $1.4 billion to the state’s coffers in the calendar year 2018, which amounts to about half the state’s annual general fund. The crash will change that.
A recent memo from the Wyoming Legislative Service Office, a nonpartisan arm of the Legislature, projected that for the next fiscal year the price of oil per barrel could fall as much as 70% below earlier projections and production could decline by as much as 30%, amounting to a nearly $334 million revenue loss.
“This has been like being in an elevator where the cable snapped and we haven’t hit bottom yet,” said Robert Godby, deputy director of the University of Wyoming’s Center for Energy, Regulation and Policy Analysis.
Alaska doesn’t have personal-income or general sales taxes, leaving it highly dependent on oil-related tax revenue.
Mouhcine Guettabi, an associate professor of economics at the University of Alaska Anchorage, said the state has already been cutting its budget for six years and now faces even bigger strain. It might need to turn to new sources of revenue, he said, such as an income or sales tax.
Adding to its challenge: The state looks set to lose its tourism season because of the coronavirus pandemic, which typically brings in about $1.5 billion dollars in a couple of months, much of that from cruise visitors.
“The state finds itself in a really precarious place,” said Mr. Guettabi.
A Louisiana survey during the last two weeks of March, when oil prices were still above $20 a barrel, showed members of the state oil and gas association anticipated cutting production and employees by as much as 70% within four months, a reduction that could cost the state more than 24,000 jobs and $2 billion in wages.
Louisiana Oil & Gas Association President Gifford Briggs said the group is in the process of updating those projections in light of the recent price crash. “Our members are telling me that they’ve instructed their field people to begin shutting in production immediately,” he said.
In Oklahoma, production and oilfield services companies have laid off hundreds of workers in recent weeks. The number of state rigs in operation has fallen in half to 24 since the beginning of the year.
“We’re not seeing large-scale layoffs as of yet, but I’m afraid we’re just on the cusp of that,” said Tom Seng, director of the University of Tulsa’s School of Energy Economics, Policy and Commerce.
S.I.R. Q,LLC, a small oilfield service company based in Williston, N.D, typically spends September through May dispatching crews to drilling sites to heat water used for fracking. Its last customer has stopped production. The company’s chief executive, Todd Williams, is looking for other ways to deploy the firm’s fleet of trucks. He expects the company can hang on for about six months with no oilfield work.
“Even if we have our trucks working, maybe I’m going to have to find another job,” he said.