Full Title: Dallas Fed Energy Survey, Oil and Gas Sector Growth Stalls amid Sharp Oil Price Decline
Author(s): Federal Reserve Bank of Dallas
Publisher(s): Federal Reserve Bank of Dallas
Publication Date: 01/2019
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Growth in energy sector activity slowed significantly in fourth quarter 2018, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—remained positive, but barely so, plunging from 43.3 in the third quarter to 2.3 in the fourth. Readings near zero indicate activity was largely unchanged from the prior quarter, a break from the 10-quarter-long trend of rising activity. The decrease in the fourth-quarter index was driven by both exploration and production (E&P) and oilfield services firms.
Positive readings in the survey generally indicate expansion, while readings below zero suggest contraction.
Oil and gas production increased for the ninth consecutive quarter, according to executives at E&P firms. The oil production index moved down from 34.8 in the third quarter to 29.1 in the fourth. Additionally, the natural gas production index fell from 35.5 to 24.8.
The index for utilization of equipment by oilfield services firms dropped sharply in the fourth quarter, with the corresponding index at 1.6, down 43 points from the third quarter. This suggests utilization rates remained relatively unchanged from the third quarter. Input costs on the services side increased but at a slower pace as the index declined from 46.6 to 36.7. Meanwhile, the index of prices received for oilfield services fell sharply from 23.2 to zero, suggesting prices were unchanged on a quarter-over-quarter basis. Looking at the special question responses, operating margins declined for oilfield services firms in the fourth quarter relative to the third.
Labor market indexes pointed to moderation in both employment and work hours growth in the fourth quarter, particularly for oilfield services, while wage growth accelerated. The employment index for services fell sharply, from 31.7 to 17.5. The hours worked index for services also dropped, from 41.0 to 19.4. The declines were smaller for E&P firms as the employment index moved down from 17.4 to 11.5 and the hours worked index fell from 12.8 to 7.7. The aggregate wages and benefits index advanced from 23.5 to 32.9.
The company outlook index posted its first negative reading since first quarter 2016, plunging 57 points to -10.2 in the fourth quarter. This drop was particularly prominent among oilfield services firms, where the company outlook slumped 64 points to -17.2. The uncertainty index jumped 34 points to 42.4, pointing to heightened uncertainty regarding firms’ outlooks. Almost 58 percent of firms reported greater uncertainty.
When asked about expectations for where West Texas Intermediate (WTI) oil prices would be by year-end 2019, the average response was $59.97 per barrel. This is close to $11 higher than the average spot price during the survey period, which was $49.22 per barrel. Responses ranged from $45 to $80.
On average, respondents expect Henry Hub natural gas prices to be $3.34 per million British thermal units (MMBtu) at the end of 2019. Responses ranged from $2 to $5.50. For reference, Henry Hub spot prices averaged $3.97 per MMBtu during the survey collection period.