HOUSTON—The upstream sector in Texas is undergoing a mild state of contraction based on data through June, according to Karr Ingham, a petroleum economist for the Texas Alliance of Energy Producers.

The decline can be “unnerving” for both producers and the state of Texas which relies on the energy industry to help fund a portion of roads, schools and emergency services from the state and local taxes and state royalties paid by oil and gas companies, Ingham said during a midyear update of the Wichita Falls, Texas-based trade group’s “Texas Petro Index” at the Petroleum Club of Houston on July 31.

Current crude oil prices are not “high enough to stimulate additional growth,” said Ingham, the creator of the index which tallies various exploration and production indicators such as crude oil and natural gas prices and markets, the statewide rig count, drilling permits, industry employment and crude oil and natural gas production.

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Texas continues to increase production even though the rate has “slowed a little,” he said. The volume of crude oil production in the state rose by 15.1% monthly and 19% year-to-date. In June, Texas oil production surpassed 5 million barrels per day (bbl/d) primarily driven by the Permian Basin, which is located in the western part of the state as well as southeastern New Mexico.

Ingham said Texas’ daily oil production stands at 42% of total production in the U.S. with the Permian Basin, in particular, comprising 25% of the country’s production.

Meanwhile, investors have become impatient and are seeking greater profit margins from producers across the country. The pressure on the industry is being felt in the Permian Basin, according to Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University’s Cox School of Business in Dallas.

“Activity has slowed markedly in the Permian over the past few months as investors press E&P companies to focus on the bottom line rather than increases in output,” Weinstein said. “At the same time, the demand for oil and derived products is slowing because of various trade wars and a European economy on the verge of recession.”

The Texas Petro Index peaked at 213.3 in October 2018 and has since lost 2.9% of its value. The index dipped in six of the past eight months, including four straight monthly declines, Ingham said.

Several economic indicators have declined through June compared to a year ago. The monthly average of the rig count dipped by 12.5% although the year-to-date average only fell by 0.1%. Monthly drilling permits fell by 18.6 as well as crude oil well completions, which declined by 30.9% monthly and 12.8% year-to-date. Still, the number of energy jobs, which Ingham said are some of the highest paying jobs in Texas, have risen slightly by 4.8% in June compared to a year ago.

Since March 2015, production in Texas has remained in an upward trend when volume reached 3.6 million bbl/d except for a decline to 3.1 million bbl/d, of 13.7% or total volume, in September of 2016. Production has rebounded and reached 5.09 million bbl/d in June.

Looking ahead, Ingham said the total volume of crude oil production in Texas will be higher in 2019 compared to 2018 even though natural gas production in the Permian is putting a damper on development in the basin.

While the volume of crude oil production in Texas has risen, global oil prices have fallen drastically by 19.5% on a monthly average and 13% by year-to-date.

U.S. West Texas Intermediate (WTI) prices were $51.35 a barrel in June and rose to $54.5 a barrel as of July 30, a massive dip from $101.68 a barrel in June 2014. A low was reached on Feb. 11, 2016, when WTI prices plummeted to $22.75 a barrel.

According to Ingham’s forecast, crude oil prices will likely remain sluggish for the remainder of 2019 and early 2020 because of the continued uncertainty surrounding potential trade disputes. The rest of the year will likely mirror the first half of 2019, he continued, as neither supply or production volumes will change in either direction.

Crude oil prices are not likely to reach the $60 to $70 a barrel range since there is not enough energy demand, he added.

U.S. crude oil inventories reached 436.5 million barrels as of July 26, which is a decline of 8.5 million barrels from a week earlier, but up by 27.8 million barrels from year earlier, according to the Energy Information Administration (EIA), the independent statistical arm of the Department of Energy based in Washington, D.C.