OKLAHOMA CITY – Oklahoma was hit harder than most areas of the country as the dependence on the oil industry, coupled with COVID, caused a reduction in imports of nearly 30% in Q2 2020.
Last month in a study published by the American Institute for Economic Research, Research Fellow Peter Earle explored the effects of lockdown policies on regional economies. Geographic regions were broken up into New England, Mideast (Mid-Atlantic), Great Lakes, Plains, Southeast, Southwest, Rocky Mountain, and the Far West, with Oklahoma categorized in the Southwest region. The analysis focused on GDP, imports, exports, business formations and unemployment to compare the regions.
Regional GDP fell dramatically nationwide in the second quarter of 2020 as lockdown policies and stay-at-home orders took effect. Data for Q1 indicates the start of the decline, although the change was not nearly as substantial as seen in Q2, with the National Bureau of Economic Research dating a recession as having begun in February 2020.
The Great Lakes region experienced the largest drop in seasonally adjusted annualized rate of GDP by 6.6% between Q4 2019 and Q1 2020, as manufacturing — specifically in the automotive and aerospace industries
— comprises a disproportionate amount of GDP compared to other sectors. The Rocky Mountain region saw the smallest decrease in GDP at just 2.8% over the same period as mining, the dominant industry in the area, was largely distanced from the impact of lockdown policies.
In the second quarter, the decline in GDP across all regions was between 27.6% and 34%, with the Mideast hit the hardest and the Rocky Mountain region the least. The combination of lockdowns in New York City and the dependence on manufacturing caused a 39.3% decline in the state of New York alone. But the lockdowns were far more detrimental to one industry in particular: tourism. Hawaii and Nevada, both heavily dependent on tourism, both saw declines in second-quarter GDP of 42.2%. Widespread flight and route cancellations further exacerbated the problem, with Las Vegas McCarran International Airport saw services suspended by the major airlines. In the state of Delaware, where finance, insurance, and administration are dominant, a decline of only 21.9% was noted, the lowest of any state nationwide.
While the Rocky Mountain and Southwest regions fared somewhat better than most, imports plummeted dramatically between Q1 and Q2 2020. Oklahoma was one of the hardest hit states, experiencing a decline of nearly 30%, following Michigan and Hawaii at 47% and 64% respectfully. Dependence on the oil and gas industry in Oklahoma largely accounted for this spike. Because of the influx of medical supply shipments into New York due to the area being hit by COVID-19 both harder and earlier than most others, imports increased by 62% between Q1 and Q2.
Exports among regions comprising goods and services saw declines nationwide. Southeast and Southwest regions saw the biggest drops, with the Great Lakes close behind. In Michigan, the decline in output from the automotive industry drove exports down regionally, while oil and gas exports in Oklahoma and Texas remained the driving force in the Southwest. Reliance on the aerospace industry, specifically in South Carolina, hit the Southeast.
Lockdowns created a one-two punch in regions heavily dependent on the oil and gas industries as international agreements among the largest exporters worldwide came to an impasse. In an effort to create instability, Russia flooded the international oil market, causing a glut that drove prices down significantly. Saudi Arabia and other OPEC nations followed, plunging prices on commodities, futures, and forwards. In mid-April, the futures contract on May 2020 West Texas Intermediate tumbled to -$37.63 per barrel. This meant that not only was the future oil considered “free,” traders were paying buyers to take on the glut of inventory as storage reached capacity.
The collapse left many companies in the industry unable to service their debt obligations, as the assumption over the last two decades was that oil prices would not dip below $30-$40 per barrel indefinitely. Bankruptcy restructuring became a norm over the summer, with Oklahoma’s own Chesapeake Energy being one of them. Estimates showed over $2 billion in losses to Oklahoma energy companies in the second quarter alone. Sandridge Energy CEO Carl Giesler called it, “arguably the most challenging in the history of the oil and gas business.” Oklahoma oil and gas gross production tax collections were down 71.6% or $57.8 million dollars in July 2020 alone, according to the Office of the State Treasurer.
Long-term ramifications of the first set of lockdowns due to the COVID-19 pandemic in the spring of 2020 will continue to impact regions nationwide for years and possibly decades to come. Although oil prices have stabilized around $40 per barrel, it remains down over 30% from the pre-pandemic prices of around $60 per barrel, further affecting international trade and commerce.
As COVID cases and hospitalizations nationwide this week are the highest since the start of the pandemic and appear to be steadily rising, the likelihood of another round of lockdowns cannot be ignored. As policymakers consider how to combat this new spike in the pandemic, it is essential that data and analysis from the first round of lockdowns be included in the consideration to ensure less of an impact on the regional, national, and global economies.