There is a saying in Houston: when oil goes up, everything goes up, and when oil goes down, everything goes down except the number of people at the airport heading to somewhere cheaper. It is not a perfect aphorism, but it has a lot of empirical support.
I was born in Texas and have spent most of my life in Houston. The relationship between oil prices and this city's fortunes is not abstract to me. It is visible in the Galleria on a Friday night, in the vacancy rates along the Energy Corridor, in how confidently the guy at the next table at Pappas Bros. is ordering wine.
Houston's Foundational Relationship with Oil
Houston became the energy capital of the world through a combination of geography, infrastructure, and timing. The Gulf Coast refineries process nearly a third of U.S. refining capacity. The Ship Channel handles enormous volumes of petroleum products. The city is home to the global headquarters of more major integrated oil companies and independent producers than any other city on earth, including several that you have definitely heard of.
When oil prices are high, Houston companies expand. Exploration budgets grow. Oilfield service companies hire. Engineering firms add headcount. Commercial real estate fills up. The residential market in the western suburbs. Katy, Sugar Land, The Woodlands, tightens, because that's where a lot of the people who work in energy live.
When oil prices fall, the reverse plays out with what feels, at times, like unseemly enthusiasm.
The 2015–2016 Downturn: A Case Study
The collapse of oil prices from over $100 per barrel in mid-2014 to under $30 in early 2016 hit Houston harder than perhaps any American city. Tens of thousands of energy industry jobs were eliminated. Office vacancy rates along the Energy Corridor surpassed 25% in some areas. The city's unemployment rate rose sharply even as the national rate continued to fall.
The recovery, when it came, was gradual and uneven. Some of those jobs didn't come back, the industry restructured, became more efficient with fewer people, and capital spending never fully returned to pre-2014 levels even as prices recovered.
This downturn reshaped Houston's relationship with oil in a meaningful way. The city has spent the years since working to diversify its economic base, healthcare, technology, and the expanding Texas Medical Center have absorbed some of the volatility, but the energy industry remains the center of gravity for the local economy.
How the Relationship Has Changed
The 2014–2016 cycle revealed something important: the threshold price below which Houston feels pain has declined. Improved drilling efficiency, lower production costs, and leaner operations in the Permian Basin and Eagle Ford have lowered the breakeven price for many producers. Where $60 per barrel might once have triggered significant distress, the industry now functions at those levels with much less strain.
This is partly good news for the industry and partly a reflection of what it took to survive the downturn. The companies that made it to the other side are structurally different from the ones that went into it.
What to Watch at the Local Level
If you are in Houston and want to understand where the local economy is headed, the Baker Hughes rig count is as useful as any leading indicator. Published weekly, it tracks the number of active oil and gas drilling rigs in the U.S. and tends to lead employment in the oilfield services sector by six to twelve months.
Houston commercial real estate, particularly Class A office space in the Energy Corridor, Greenway Plaza, and downtown, is a lagging indicator of industry health. Leases run on multi-year cycles, so office vacancy rates reflect decisions that were made a year or two ago. But they tell you where confidence was, and sometimes where it's going.
One More Thing
There is a particular quality to the optimism of Houston energy people during a price rally that is difficult to describe to someone who hasn't experienced it. It is not merely financial confidence, it is civic pride, wrapped in crude oil futures. When WTI clears $80 and holds, Houston feels like a city that knows something the rest of the country doesn't.
It doesn't always know what it thinks it knows. But it believes it does, and that belief generates a kind of energy that is, in its own way, worth something.
This article reflects the author's perspective and experience living in Houston. It is for informational purposes only and does not constitute financial or investment advice.