January 21, 2016

Experts paint grim picture on oil prices to legislators

Margaret Wright

Oil pump in southeast New Mexico.

Two experts gave a presentation of a grim scenario about oil and gas prices on Wednesday afternoon. The two spoke to the Senate Finance Committee, which plays a key role in crafting the annual state budget.

Oil rig in southeast New Mexico. Photo by Margaret Wright

Margaret Wright

Oil rig in southeast New Mexico. Photo by Margaret Wright

Jeff Mitchell, director of the University of New Mexico Bureau of Business and Economic Research and Dr. Jim Peach, Professor of Economics at New Mexico State University outlined the problems—with few solutions—that New Mexico faces in the wake of tumbling oil prices.

Mitchell’s outlook, which was slightly better than Peach’s, was that while the state is still reeling from low oil prices, the employment impact of low oil prices should wear off by 2016.  Mitchell added that lower gas prices also means more savings for consumers at the pump, which generally leads to more money spent on goods and services throughout the state.

Peach painted a more grim picture of what’s in store for New Mexico’s economy. He told the committee that oil prices will remain low until the United States as a whole cuts back on production.

“We’ve got a lot of oil and there’s no sign of higher demand,” Peach said.

Mitchell added another perspective on dropping prices by adding that prices can only drop so low and they will eventually hit a “bottom” before prices go back up.

“I don’t mean to sound like some sort of optimist here,” Mitchell said.

He added that the cost of oil “only can fall so much.”

Oil prices closed at below $27 per barrel on Wednesday. Low oil prices have contributed to an overall sharp stock market downturn.

Peach said he somewhat agreed with Mitchell that an economic recovery is near, but said that “2017 will be the year we possibly get jobs back.”

The panel had some general questions regarding oil prices and solutions for improving the state’s economy, but the most telling comment came from Sen. Carlos Cisneros, D-Questa.

“I’d like to say thank you for the presentation,” Cisneros told the two presenters. “Perhaps I should say thank you for the wake up call.”

They also spoke about other economic issues in the state.

Peach said that New Mexico has a failed strategy of economic development and he separated the concept of growth from development. Growth, he said is quantitative whereas development “means structural change and that’s threatening.”

“I highly recommend some change,” Peach said.

Peach also said that while economic models can predict prices of oil and other commodities, it’s policy that is to blame for poverty.

“There is no economic justification for poverty,” Peach said. “None.”