Over the course of the last two weeks, oil prices have hit above $80 a barrel, a far cry from the negative territory where oil was selling nearly a year and a half ago.
The seven year high is being driven by a resurgence in demand around the world as economies recover from COVID-19 restrictions and shutdowns and OPEC keeping production down.
Dipping briefly into the negative territory in April 2020 and hanging around $30-45 for most of the 2020 year, low oil prices rocked the industry with layoffs and shutdowns.
But things have changed in 2021. By January, it had hit $50 per barrel and began slowly rising throughout the year.
In June, oil hit $70 and now has surpassed $80 per barrel in October.
“It is extremely good for our community. It creates a lot of job opportunities. Our businesses are starting to see more activity, which is good,” Hobbs Mayor Sam Cobb said. “… Any time we see an increase in what is the main commodity coming out of this area, we’re glad to see that.”
“Although consumers do not always appreciated the high cost of fuel and energy, the higher price per barrel is great for our community and local oil related business,” Hobbs Chamber of Commerce CEO Patty Collins said.
“I think what we hear is that there is still a lot of optimism around the oil and gas industries,” said Jennifer Grassham, Economic Development Corporation of Lea County chief executive officer. “People are very excited about $80 oil, especially in context to what they were in 2020.”
N.M. Rep. Larry Scott, R-Hobbs, a partner with Lynx Petroleum, squarely put the rising price per barrel on supply and demand.
“This is a consequence of a couple things. One, various economies around the world are working on recovering from COVID-19,” Scott said. “The swing producers have agreed to increase production but only moderately.”
Grassham said the vibrant economy helps in economic development efforts.
“When somebody is looking at Hobbs and Lea County as a potential place for expansion, having it as a main economic driver driving up (the economy) it is a great selling point,” she said.
She noted with oil hitting above $80, it is a time to focus on diversification.
“Hobbs has history. When times are good, that is time to invest,” Grassham said, explaining efforts in health care like the new hospital and clinics and a vibrant oil and gas industry helps in retail retention and recruitment.
For now, Scott said the local industry appears to be steady and busy, but added there is equipment still sitting in yards so there could be more activity if the demand merits.
“There is a help wanted sign for CDL drivers hanging on every fence in town,” Scott noted.
Cobb also cautioned governments in communities like Hobbs are not seeing the soaring benefits of higher prices like they have in the past due to House Bill 6, which changed the state’s gross receipts tax law. House Bill 6 changed the state’s tax law from origination taxes to destination taxes, meaning oil and gas service companies located in Hobbs don’t pay the city a gross receipts tax for work down outside Hobbs anymore like they would have in the past.
“One of my concerns is this HB 6. We’re already seeing a decline in gross receipts from our service industry providers,” Cobb said. “We still feel like there needs to be some changes in that legislation in order for us to ensure our tax base is not substantially reduced.”
Cobb said the city and other regional governments are gathering numbers to present to the state and the legislators to explain what many believe is an unintended consequence of HB 6. Cobb also noted HB 6 made exceptions for certain other industries so he said a case can be made an exception needs to be made for the oil and gas industry to preserve the tax base for communities.
“When we lose the tax revenues from those industries, that impacts us negatively,” Cobb said, which in turn impacts the city’s ability to maintain streets, fire and police, and parks.
The city has put the potential tax loss in the millions of dollars for just Hobbs alone.