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Impact of the interest rate hike on the oil and gas industry

As inflation rises and the Federal Reserve tries to slow the growth of the inflation rate, the price of oil has fallen over the last 10 days.

MIDLAND, Texas — The inflation rate has risen up to 8.6%, the highest rate since 1981, and the Federal Reserve has raised interest rates by 0.75%, the biggest hike since 1994.

Those are contributing factors to what some fear could lead to a recession. So how does it impact the Permian Basin and the oil and gas industry?

West Texas is actually pretty insulated from downturns because of oil and gas. However, the price of oil has dropped from about $123 a barrel about 10 days ago, to around $104 a barrel now.

Is that reason to worry? Mickey Cargile, president of Cargile Investment Management, doesn't seem too concerned.

"I don’t wanna say it’s a concern," Cargile said. "It’s a concern for speculators. The true price of oil is somewhere between $90 and $100. Everything else is speculation that’s based on expectation of the future. So if the Fed does slow the economy down, recession or not, a slowing economy means less fuel consumption."

When it comes to recession, Cargile said we need to redefine what it means to us here in west Texas.

"Recession is much different to the Permian Basin than it is throughout the country," Cargile said. "Here we define it as boom and bust rather than recession and growth. Right now, we’re in a boom period. That’s likely going to continue for a couple of years regardless of what happens in the United States economy."

Cargile bases that on demand for oil, increased production, and in turn, a rising rig count.

"When the demand is high and the price is up, our activity out here is quite strong," Cargile said. "Our activity is based solely on rig count, so you can watch the rig count. It doesn’t really matter what the number is, but as long as it’s going up, our economy out here will be very stable."

In fact, Cargile doesn't see much impact on the oil and gas industry unless we see what he describes as a "harsh recession."

"If we entered a harsh recession, then that certainly is a possibility, but I don’t see that as happening," Cargile said. "I think the recession itself will probably just be a marker that maybe we don’t notice very much. Hopefully it slows down the growth of the inflation rate."

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