Analyst assesses local impact of oil crash

April 26, 2020

A dramatic shift from record employment to record unemployment claims leave no doubt that the economic impact of the COVID-19 pandemic is substantial and widespread.

What is far less clear is what the long-term effect will be. Will the “new normal” that comes out of it be an orderly recovery or a drawn-out economic downturn?

B.J. Simon, associate executive director of the Baytown West Chambers Economic Development Foundation and one of the best-connected people for understanding the local economy, says it’s still too early to tell.

“Everything is not stabilized,” he said. “Until stability sets in with a high degree of belief that the ability to mitigate against the virus is demonstrated and believed by the public and people feel safe about engaging in a way with commerce that is not going to be detrimental to their health and their loved ones, the unknown will prevail.”

There is evidence that people are still engaging in commerce with the businesses that are open, using drive-thrus, delivery and limited access. “These behavioral changes, once they become accepted and normalized, will help stabilize and provide a basis for movement,” he said.

Simon noted the last major pandemic was the Spanish flu of 1918, so there is little precedent for how to handle the current situation.

The drop in oil prices is a concern in the region, but since it is related to an unprecedented set of factors, it is not clear how it will play out.

For energy and petrochemical, the factors to watch are how deep and how long the upstream impact is, and how well the midstream sector adapts to changing market conditions.

A greater uncertainty is in retail.

The COVID-19 situation has gotten people much more used to the buy online, pick up at store, or “BOPAS” model of shopping, though that trend was already happening and broadening, as evidenced by the work being done at the Baytown Target store.

Simon said, “The Target upgrade is related to essentially changing their store into somewhat of a distribution center and storefront combination.”

The distribution centers in west Chambers County and along Interstate 10 are de facto e-commerce facilities, Simon said, as the retail stores they serve make the move, like Target, to be hybrid distribution channels for both face-to-face and online sales.

In spite of the number of empty parking lots, Simon said construction continues on capital projects in the petrochemical industry and other sectors, and there are still companies that are showing interest in locating operations in the area.

Home prices are stable and in some cases increasing in the last seven months, he said. Stimulus activity by the government and the Federal Reserve has led to activity in home financing and refinancing.

“Everything’s going to be driven by human behavior and how well businesses can respond to market forces and market demand within the context of the regulatory frameworks at the city level, at the county level, at the state level and federal level. All of those interdependencies are going to have some impact.”

For now, Simon said, “Everybody is doing their constant re-evaluation until some degree of stabilization occurs, and that’s going to be required from an economic perspective, a public health perspective, a geopolitical perspective and a geospatial perspective for that matter.”