Businesses were reopening in recent weeks and oil prices had climbed north of $40 a barrel before coronavirus infections accelerated in the state.
HOUSTON — Things were looking up for Texas in recent weeks. Oil prices had managed an impressive rebound, more than doubling to just above $40 a barrel. Restaurants and small businesses were opening up in Houston, Dallas and elsewhere. And tens of thousands of people were getting back to work.
But a recent surge in coronavirus cases in the state is messing up that neat recovery story. Small businesses that had just reopened are closing again and oil prices have slid below $40 a barrel after weeks of gains. Energy executives say they remain optimistic, but some analysts are worried about the Texas economy, which would be the world’s 10th biggest if the state were a country.
Since businesses began reopening in early May, after a four-week statewide stay-at-home order by Gov. Greg Abbott that was only loosely enforced in some areas, optimism spread that the coronavirus pandemic was under control. People returned to their dentist offices, gyms and hair salons, and bars began doing brisk business, especially in the oil production hub of West Texas.
Many residents of the state, which last backed a Democratic presidential candidate in 1976, considered mask wearing a form of opposition to President Trump. And many business owners were reluctant to force their customers to cover their faces or stay apart.
But starting just after Memorial Day, Texas began to report a rise in coronavirus cases, a trend that has accelerated over the last 10 days. The state has recorded 130,000 cases, and nearly 3,000 deaths. Hospitalizations are on the rise.
Fears of the disease spread as grocery stores and restaurants reported that employees were getting sick, and Apple this week closed seven stores in Houston again. Other large retail chains like J.C. Penney, Ikea and Nordstrom said on Thursday that they were monitoring the situation but were keeping their Texas stores open.
Restaurant reservations on OpenTable have been dropping in recent days. Data from another online platform, the Home Base scheduling app, showed total hours worked by employees at small businesses were rising until Monday, but then stalled as the week progressed, according to analysts at the Federal Reserve Bank of Dallas.
Image
Image
“Certainly we’re concerned,” said Keith R. Phillips, an assistant vice president at the bank. “Staffing levels are beginning to flatten and decline and we’re hearing from our contacts that businesses that had sent workers home and brought them back are now sending them back home.”
On Thursday, Governor Abbott issued an executive order suspending elective surgery in four populous counties to ensure that hospitals have the space to care for coronavirus patients. He also paused further business reopenings.
William Presta, a barbershop owner in the Houston suburb of Bellaire, closed on March 22 and reopened on May 12. Business was going well until this week when demand suddenly dried up, he said, so he has decided to close the shop next week and take a vacation.
“I’m just being conscious and smart and trying to keep out of harm’s way,” he said.
Texans are accustomed to a gyrating economy that has long soared and tanked along with oil and natural gas prices. There have been four steep oil downturns in the last four decades. In the 1980s, for example, a sharp drop in oil prices devastated the state’s energy companies and banks. Three out of every four petroleum worker lost their jobs.
Over the years the state economy has diversified, with medical centers mushrooming in Houston and Dallas, and Austin becoming a technology hub. But energy remains a critical part of the state’s economy. The shale fracking revolution has made Texas the leader of a national energy boom and fueled an expansion of petrochemical plants and natural gas export terminals.
At the start of the year, Texas oil and gas companies appeared to be doing OK. The U.S. benchmark oil price hovered around $60 a barrel. When the pandemic took hold, and Russia and Saudi Arabia briefly flooded the market with oil, the price dropped to $20 a barrel in March, and then, in a first, briefly dropped to more than $37 below zero.
Oil companies shut down wells and stopped new drilling except when companies were legally obligated to employ rigs under contract.
More than 26,000 Texas oil workers — roughly one in four — lost their jobs in April, according to state employment data. That was the largest single month of oil and gas layoffs. But the impacts were far greater, rippling across the state, hurting businesses that serve the energy industry and its workers. Regional banks, many of which have large oil-company loan portfolios, are being strained, and investments in pipelines are being delayed.
The drop in oil prices and the spread of the coronavirus dealt a double punch and 1.3 million Texans lost their jobs in April.
Image
But oil prices recovered faster than most analysts had expected as producers in the United States, Saudi Arabia, Russia and other countries cut back production. And as many states opened up their economies, gasoline demand started climbing. National average prices at the pump for regular gasoline have increased roughly 10 percent, or 20 cents a gallon, over the last month, according to the AAA motor club.
Texas added 237,800 jobs in May, a monthly record, as businesses reopened and oil companies slowly began sending workers into the field to revive shale wells. At nearly $40 barrel, oil is now expensive enough for producers to reopen some wells they had shut.
“The near-term situation in oil markets is undeniably severe, but it is a temporary aberration stemming from an unprecedented health issue,” said Ray Perryman, an economic consultant in Waco.
But despite his overall optimism, Mr. Perryman remains cautious because of the recent surge in coronavirus infections, which he said should have been avoided. “The spike is higher than necessary due to lack of adherence to safety recommendations and is becoming alarming,” he said. “You can’t fix the economy if you don’t get to a sustainable place on the health crisis.”
The Texas oil industry is marked by wildcatters who wear optimism on their sleeves whatever the oil price, in part because low oil prices typically stimulate demand, which in turn pushes prices back up. But the current crisis is fundamentally different because the pandemic has kept demand suppressed even at low prices. Demand for jet fuel, for example, is still subdued because airlines are flying far fewer flights than they normally do this time of the year.
Energy executives say that at $40 a barrel, the U.S. oil price is not high enough for them to hire more workers and drill more wells. They say the price needs to approach $50 a barrel, but few experts expect that to happen until the pandemic is largely under control or an effective vaccine is widely available.
“I’m optimistic to a point,” said Scott D. Sheffield, chief executive of Pioneer Natural Resources, a leading Texas oil company. “If the infection numbers don’t level back, it’s going to be a tough decision for the governor as to whether or not to put back in place ‘shelter in place,’ which would be an economic disaster for the state.”
Even if the governor does not issue another stay-at-home order, many businesses could decide they have no choice but to shut down because they cannot afford to pay employees with few or no customers coming in the door. Some say closing again would be devastating but not doing so could be, too.
Mithu and Shammi Malik had been hoping to open Musaafer, a new Indian restaurant in Houston three years in the making, in March. Instead, the married couple had to wait until May 18 because of state and local public health restrictions. Roughly two weeks after they opened, a few of their employees tested positive for the virus, forcing them to shut down again.
The couple decided to give it another shot, and reopened on June 12, and are now nervously monitoring the rise in coronavirus cases and wondering if they will be forced to close their doors yet again.
“You can’t ignore that Covid itself is spreading quickly,” Mr. Malik said. “We are very much aware that cases are going up.”
Sophia June contributed reporting from New York, and Gillian Friedman from Salt Lake City.
