DALLAS — Higher oil prices have often translated into pain at the gas pump, falling demand for high-margin light trucks and a renewed push for hybrids and electric vehicles. So with oil prices hitting three-year highs in January, it might seem like time to put out the red flags.
In South Texas, however, those flags may as well be streamers on auto lots as the domestic oil industry churns back to life after a price bust that has weighed heavily on new-vehicle sales there over the last two years.
While the Houston economy has diversified into service industries that are more insulated from oil's wild ride, the combination of near-record oil output and prices above $60 a barrel still brings hope for auto sales.
"Everyone in Houston, they may not be in the oil industry, but they are a step or two away," said Wyatt Wainwright, president of the Houston Automobile Dealers Association. "You may not be in it, but you're in it."
Potential stabilization of oil prices at current levels, along with pent-up demand, could fuel a modest increase in sales of new pickups, crossovers and SUVs, which make up more than 70 percent of the local vehicle mix.
West Texas Intermediate crude oil futures ended January at $64.73 a barrel, up nearly $12, or 23 percent, from a year earlier, though analysts polled by Reuters predict the price for this year will average $58.11 as domestic drilling cranks up.
"I think at $60 a barrel and above, we start to really go," Wainwright told Automotive News. "And of course, if it rises any from there, I think it could really take off."
Robust attendance at the Houston Auto Show in late January is another indicator that buyers are out there following the destruction of an estimated 300,000 vehicles when Hurricane Harvey hit in August, Wainwright said.
In the wake of the storm, sales of new autos increased by only about 30,000, which suggests that many of the totaled vehicles were replaced by used vehicles or not replaced at all, Wainwright said. That represents an opportunity in the near future.
But Texas' gain doesn't have to represent pain for the rest of the country.
Surveys suggests that consumers won't downsize to inexpensive, fuel-efficient vehicles unless gasoline prices rise a lot more, said Peter Nagle, a research analyst at IHS Markit. Rising prices can lift the economy in Texas, Oklahoma, Wyoming and the Dakotas with little fallout elsewhere.
The last gas-price shock coincided with a U.S. recession and rising unemployment, pushing consumers to save money wherever possible. The economy today is expanding, and consumer confidence is high, pushing buyers into bigger vehicles in spite of rising fuel prices.
Gasoline prices and fuel economy are "relatively low" among car shoppers' decision-making criteria, Nagle said.
In states with relatively high gas prices, such as California, the spike could help hybrid sales a little, Nagle said.
In the Texas oil patch, optimism for higher auto sales is tempered by continuing struggles in the Houston economy as a construction boom eases and residents rebuild after Harvey.
"The prosperity that's out there has not gotten down to the blue-collar worker in the Houston area," said Steve McDowell, owner of InfoNation, which compiles registration data for the TexAuto Facts report.
McDowell sees new-vehicle sales in the nine-county Houston area growing about 5 percent this year to 306,000, well off the 370,000 sales record in 2015, as oil price started to fall.
Part of the skepticism about a new oil boom is that the oil and gas industry has learned to churn out more product with fewer workers, said Bill Wolters, president of the Texas Automobile Dealers Association. The upside of that efficiency is a more predictable market with fewer big swings.
"At $65 a barrel, the market is certainly doing better, and I think we'll see that in vehicle sales," Wolters said, "but it's not going to take us to record heights by any means."