The Texas Petro Index (TPI) declined in November and December 2018 on the heels of 23 straight months of growth, in response to dramatic declines in crude oil prices in the last two months of the year.

Posted prices (the benchmark price paid to producers) for West Texas Intermediate crude oil declined from a monthly average of over $67/barrel in October 2018 to $45.31/barrel in December. Daily posted prices fell from a high of $71.75 on October 1 to a low of $39.25 on December 24.

However, Karr Ingham, Petroleum Economist for the Texas Alliance of Energy Producers and creator of the Texas Petro Index, said the recent decline in the TPI may not mean the end of the current cycle of growth and expansion in the Texas upstream oil and gas economy.

“It has virtually always been the case that a decline in the Texas Petro Index signaled the onset of a contraction of some magnitude, but that may not be the case this time,” Ingham said in a statement. “A series of geopolitical market events may have been the primary culprit in that particular price event, and the market seems to be working through those in early 2019.”

Ingham noted that market sentiments were largely bullish in advance of potential sanctions on Iranian crude oil product ion, prompting President Trump to implore Saudi Arabia to increase production. Even as Saudi output and exports surged, waivers were granted to a number of countries vying to purchase Iranian oil, leading to a sudden but temporary oversupply, which then sent markets reeling.

“As these events play out, Saudi Arabia and OPEC have implemented production cuts anew, crude oil markets have stabilized and prices have recovered a significant portion of what was lost,” Ingham said. “Increasing Texas and US production remains of some concern, however, in terms of the price outlook for 2019.”

New records were established for Texas and U.S. crude oil production in 2018 according to published data from the Texas Railroad Commission, the U.S. Energy Information Administration (EIA), and Alliance estimates. Texas crude oil production surpassed 1.6 Bbbl for the year to shatter the previous record of 1.26 Bbbl in 1972. Estimated Texas crude oil production in 2018 outpaced the 2017 annual total by well over 25% according to Alliance estimates.

“Texas really flexed its muscle in 2018,” Ingham said, noting that for the year Texas crude oil production comprised some 40% of total US crude oil production. “And daily production at year-end topped about 42% of US daily production, and these numbers are on track for Texas to provide 45% of US production by year-end 2019.”

The Texas Petro Index finished the year at 212.2 for December, down from 212.5 in October and 212.4 in November.

Several components of the index flattened at year-end, Ingham said, noting that the rig count and the number of drilling permits issued slowed or declined in the last two months of the year. That, along with crude oil price decline, proved sufficient to knock the TPI off its growth track, he said.

“Industry employment appeared to decline from October to November, but employment doesn’t generally respond that quickly to price movements,” Ingham said. “And in fact, employment recovered in December to surpass the October total so we shouldn’t read too much into a one-month trend, which is no trend at all.”

According to Texas Workforce Commission estimates, with revisions by the Alliance, about 238,300 Texans were directly employed on upstream oil and gas company payrolls consisting of oil and gas producers, service companies, and drilling companies. That represents an increase of nearly 16% compared to 2018, and the addition of 56,700 jobs over the course of the current expansion dating back to September 2016.

Among the data highlights for 2018: Posted WTI crude oil prices averaged $61.27 for the year, an increase of 29% compared to the 2017 annual average; the statewide rig count finished the year at 531 on average for December, an increase of over 16% compared to the December 2017 monthly average rig count, but down slightly from 533 in October and November; the number of drilling permits issued in Texas was up by 5.6% in 2018 compared to 2017, which in turn logged an increase of over 55% compared to the previous year; estimated crude oil production of 1.615 MMbbl outpaced the 2017 annual total by nearly 28%; daily crude oil production surpassed 4.9 MMbbl by year-end 2018; natural gas production continued to increase in 2018 to an estimated 8.6 Tcf, an increase of nearly 9% year-over-year; associated gas production comprised roughly 38% of total production by year-end 2018; and direct oil and gas employment reached an estimated 238,300 in December up from about 205,900 at year-end 2017, and 181,600 in September 2016.

“The growth in Texas crude oil production even in the face of lower prices, rig counts, drilling permits, and employment compared to 2014 peak levels remains the story of the year,” Ingham said. “Crude oil pricing will determine activity levels for most of the components of the TPI, and may alter the rate of growth in statewide production in 2018. But Texas production in 2019 will outpace 2018 production levels and climb ever deeper into record territory.”

The Texas Petro Index is a service of the Texas Alliance of Energy Producers.