Which U.S. States Are Most Exposed to Low Oil Prices?
March 12, 2020
By: Nikos Tsafos
As the world’s largest oil and gas producer, the United States will suffer from lower oil prices. Companies will cut investment and lay off staff, hitting the country’s hydrocarbon producing regions. This dynamic is increasingly well understood. Yet not all states will suffer equally. Some have diversified economies, and hence might experience more localized effects; others depend highly on hydrocarbons and will experience severe impacts.
GDP is not everything, of course, but it tells a compelling story about how different states were hit during the last oil price slump. In late 2014, oil prices fell by 60 percent in about six months. They recovered briefly but then fell again to $26 per barrel (West Texas Intermediate) on February 11, 2016. In under two years, oil fell by some 75 percent. How did that decline affect different states?
The graph below shows real, quarterly GDP for the 12 largest oil and gas producing states (based crude oil and gas output in 2019). For reference, it also shows real GDP for the country as a whole and ranks states based on their Q3 2019 GDP relative to 2012. Two dynamics are clear. First, several states were hit hard in 2014-2016. North Dakota’s GDP fell by 14 percent (for context, the Great Depression saw a 26 percent decline in GDP in four years). Alaska’s GDP fell 11 percent. Other states experienced more modest recessions (Louisiana and Oklahoma), and some experienced stagnation (New Mexico, West Virginia, and Wyoming). Only a few were truly spared.
Second, the cumulative effects of the 2014-2016 oil price shock varied. California and Colorado have diversified economies, so the 2014-2016 slump is barely visible. Texas was hit but recovered quickly. In Oklahoma, the slump turned the state from an above-average performer to average. In Pennsylvania and Ohio, the hit left a lasting impact, and both states now trail the U.S. total. Other states have seen an ever-widening gap between state and national GDP: New Mexico, North Dakota, West Virginia, Louisiana, Wyoming, and Alaska are struggling to keep up with the rest of the country.
In short, there is no simple national story about how low oil prices will affect different states or localities. If the 2014-2016 oil price decline is any guide, the impact will vary greatly across the country’s hydrocarbon producing states—and so any policy response should be tailored and targeted to those regions most affected by the slump.