Continued Depressed Oil Prices Could Threaten Texas Recovery

If the price of crude oil falls and stays below the current $13-a-barrel level for a sustained period, the nascent Texas economic recovery could stall, bankers said Tuesday.

“Texas is at equilibrium with oil at $15 a barrel,” Robert Utley, a Texas real estate developer and vice chairman of Seamen’s Bank for Savings in New York, told institutional investors at a conference given by Bear, Stearns & Co.

“If the price goes below $10, it could have some dramatic effect,” Utley said. “Texas has adjusted to a $15 oil price. What to do with a $10 price should be of some concern.”

Oil prices below $13 for a year could throw into doubt earnings projections of one of the biggest banks in Texas, First City Bancorp of Texas, said its chairman, A. Robert Abboud.

First City has projected earnings of $98 million in the first year after its April 20 recapitalization, $125 million in the next year and $139 million in the following year.

‘Optimistic Outlook’

Abboud said these profit projections assume problems only if oil prices stay below $13 a barrel for a year, an occurence he said is unlikely.

“The Texas banking system is well under control now,” he said. “I have a very optimistic outlook on thrifts. The Southwest has already had a deep recession. Now it is coming along,” said Abboud.

But Lawrence White, a member of the Federal Home Loan Bank Board, cautioned that “if the price of oil goes down, we could face increasing costs (from recapitalizing thrifts) in Texas.”

“While these low prices could substantially slow down a Texas recovery, the effect will be temporary,” said Seaman’s Utley.

In the early 1980s, oil was as high as $40 a barrel. The price dropped below $10 a barrel in 1986, wreaking havoc on the Texas economy. West Texas Intermediate, the benchmark U.S. crude, is at a 26-month low of $13.