$1.78 gas and the Oklahoma City Rental Market

[Rhett Tullis]

Many are very excited by the historically low gas prices here in okc.  I have not seen these prices in many many years.  While it is great for our pocketbook right now it will most likely be very painful in the coming months and potentially years.  I want to share a few thoughts I have and then link to a few recent articles so you understand what we may face here.  

My thoughts -

-our state seems to have a good reserves so we can and should ride this out for at least the remainder of the year if need be but it may make things tight.

-if prices do not rebound we will need a plan beyond that and it will not be pretty

-this can and will hit the rental market in a variety of ways and here are a few potential issues i see.

1. higher end rentals could see prices drop or vacancies increase as this type of downturn could hit middle to upper income families that have not budgeted or who see their jobs or incomes decrease as companies tighten their belts and cut salaries or even lay off more folks.

2. low income rentals would see more evictions and more late rent payments and potentially small decreases in price - while many of the low income families in town do not work for the oil and gas industry they do often work in service industries that are frequented by oil and gas folks or depend on programs that are subsidized by oil and gas money in our state budget. 

3. property prices and values - prices are being driven up on investment properties mostly by out of state investors as there are very few areas where you can get a "decent" property for under 100k and we are still one of them.  as items 1 and 2 above play out some out of state investors wont be able to turn a profit any longer as their margins are already just about too tight.  (also with the ongoing virus issues in the economy many folks are considering where and what is the best thing to do with their money right now) I think while property prices may stay high they will most likely plateau and could potentially drop a bit.

some recent articles and research that i find interesting.

-Russia and Saudi Arabia are in a fight over oil production and Russia is hoping to stick it to the US.  --

https://www.latimes.com/business/story/2020-03-08/oil-price-war

-Oklahoma shale producers break even at $21 to $48 per barrel (i would think its closer to $40 in Oklahoma) -

https://oilprice.com/Energy/Energy-General/Why-The-Oklahoma-Shale-Boom-Isnt-Taking-Off.html

-Oklahomas state budget is made counting on oil selling for $54 per barrel it is currently at $31 per barrel and dropping - 

https://kfor.com/news/local/dark-clouds-could-be-on-states-horizon-as-oil-prices-drop-to-30-year-low/

-While oklahoma's economy is very diverse it will be hit if prices do not rebound in the near future - 

https://oklahoman.com/article/5627150/state-chamber-provides-new-analysis-on-oil-gas-industrys-impact-on-oklahomas-economy-and-tax-revenues

-Oil and Gas would fall under mining and make up 22% of the GDP for oklahoma see page 11 - 

https://www.ok.gov/oesc/documents/lmiEconIndPub.pdf

The Good The Bad and The Ugly -

Good - oil and gas prices may come up if Russia gives in on this play.  We may also find that the companies here in Oklahoma are more resilient than we realize.

Bad - if oil prices do not come up there will be a budget shortfall or a major budget cut for the state of oklahoma in the near future.

Ugly - if prices do not go up soon or at least before the surplus of funds is used up things could get pretty ugly here and I have no idea what that could look like.  

Final Thoughts - I am not trying to scare folks out of oklahoma I just want them to know the full picture.  I personally invest in real estate here and own and manage many properties.  I think our economy will always bounce back and recover even in this type of situation as we have been through worse in the past.  I do think the extra "wrench" being thrown in all of this is the current virus outbreak and how it can/may effect all of the above. 
I am happy to be wrong on any and all of the above but these are some things I have been thinking about this week since this news broke.