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Home » Economics » Impact of rising interest rates on the oil and gas industry – NewsWest9.com

Impact of rising interest rates on the oil and gas industry – NewsWest9.com

24/06/2022 04:32:40
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As inflation rises and the Federal Reserve attempts to slow the growth in the inflation rate, the price of oil has fallen over the past 10 days.

MIDLAND, Texas – The inflation rate rose to 8.6%, the highest rate since 1981, and the Federal Reserve raised interest rates by 0.75%, the biggest increase since 1994 .

These are contributing factors that some fear could lead to a recession. So what impact does this have on the Permian Basin and the oil and gas industry?

West Texas is actually quite insulated from oil and gas downturns. However, the price of oil has fallen from around $123 per barrel around 10 days ago to around $104 per barrel today.

Is this a reason to worry? Mickey Cargile, president of Cargile Investment Management, doesn’t seem too worried.

“I don’t want to say it’s a concern,” Cargile said. “That’s a concern for speculators. The true price of oil is between $90 and $100. Everything else is just speculation based on expectations of the future. So if the Fed slows the economy, recession or not, a slowing economy means less fuel consumption.”

Regarding the recession, Cargile said we need to redefine what it means for us here in West Texas.

“The recession is very different in the Permian Basin than it is across the country,” Cargile said. “Here we define it as boom and bust rather than recession and growth. Right now we’re in a boom period. That’s probably going to continue for a few years regardless of what’s going on in the American economy.”

Cargile bases this on the demand for oil, the increase in production and, therefore, the increase in the number of platforms.

“When the demand is high and the price is up, our activity here is quite strong,” Cargile said. “Our business is based only on the number of platforms, so you can monitor the number of platforms. It doesn’t matter how many, but as long as it increases, our economy here will be very stable.”

In fact, Cargile doesn’t see much of an impact on the oil and gas industry unless we see what he describes as a “severe recession.”

“If we go into a severe recession then that’s definitely a possibility, but I don’t see that happening,” Cargile said. “I think the recession itself will probably just be a marker that we may not notice much. Hopefully it will slow down the growth in the rate of inflation.”

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