As the U.S. administration of Donald Trump pushes for lower oil prices as a policy goal, Midland, Texas, the heart of the shale industry, is taking a direct hit.
According to the Wall Street Journal (WSJ), Midland's economy is reeling after President Trump recently floated a plan to distribute Venezuelan crude directly to bring international oil prices down to around $50 per barrel. Midland is a city that sits atop the Permian Basin, the core of the U.S. shale revolution in the 2000s, and nearly half of U.S. crude is produced in this region.
With recent oil prices trading below $60 per Barrel, Midland's drilling industry is losing steam. New drilling has effectively come to a halt, and existing wells are said to be barely posting revenue at the breakeven level. Electronic billboards downtown display real-time prices and the number of operating rigs, but recent figures show little sign of a rebound.
Taylor Sell, head of Element Petroleum, a small crude development chain in Midland, said, "This is not a time to invest in wells," adding, "As drilling stops, the flow of money in the region is drying up."
Another problem is that prices are falling while production costs are rising. With the Trump administration's tariff policy pushing up prices for steel pipe and chemicals, drilling expense is increasing and corporations are moving to restructure. Vaca, a drilling fluid company, cut about 10% of its staff over the past year, and the company said it decided to reduce headcount as orders fell due to fewer new drilling projects. According to data analytics firm Enverus, the number of operating rigs in the Permian Basin fell about 14% over the past year.
The hiring slump is translating directly into weaker consumption. Hotel occupancy in Midland fell 5.6% in November last year from a year earlier, and restaurants, barbershops, and retail stores across town are seeing fewer customers. The local online flea market is reportedly flooded with pickup trucks and recreational watercraft being offered at fire-sale prices.
As the local economy slows, public sentiment toward the Trump administration is also wobbling. The oil industry is one of President Trump's core supporter groups, and he took 80% of the vote in Midland in the last election. Many local voters back administration policies such as crackdowns on illegal immigration and a hard-line foreign policy, but discontent is said to be growing as the economy deteriorates rapidly on the ground.
Nemesio Torres, who runs a Mexican restaurant in downtown Midland, said, "We expected President Trump to revive the West Texas economy, but reality is different," adding, "As people in the oil industry close their wallets, sales have fallen by nearly 30%, and I had to lay off five employees."
Within the industry, there are concerns that this slump may not be just a short-term correction. Ben Shepperd, head of the Permian Basin Petroleum Association, said, "If low oil prices persist, more wells will shut down and the very foundation of the U.S. oil industry could weaken," adding, "In the end, there is a risk that a vicious cycle of rising import dependence will become entrenched."