One of the primary challenges looming for over the health of the Texas state economy is the low price of oil, a report from the Dallas Federal Reserve said.

A research report from the bank found one of the major economic concerns for the state was the low price of oil. The price for West Texas Intermediate, the U.S. benchmark, is off more than 40 percent from June 2014 and most analysts expect the depressed cycle to continue.

"While the state's economy has become more diverse and thus less reliant on the oil and gas industry, the price drop has still negatively affected the Texas economy and labor market," the report said. "Some pockets of the state remain heavily dependent on the energy sector, making local industries vulnerable to spillover effects."

The Railroad Commission of Texas, the state's energy regulator said preliminary data from March show crude oil production averaged 2.31 million barrels per day, down from the 2.34 million bpd reported in February.

Texas is the No. 1 oil producer in the nation. The so-called Beige Book from the Dallas fed earlier this week said demand for oil field services, as well as the number of rigs actively exploring for or producing oil and natural gas, were on the decline, with losses concentrated in the Permian shale basin.

Weekly data from oilfield services company Baker Hughes show Texas led the nation in the total number of rigs lost for the week ending May 29. The Beige Book found most companies working in the exploration and production side of the energy sector expected their capital expenditures to fall by as much as 40 percent.

The Dallas bank's report said lessons learned from past slumps in oil prices found challenges were more apparent in the longevity of the bear market than from the actual discount.

"The bottom line: The persistence of low oil prices seems to matter more for banks than the magnitude of falling prices," the report read.