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Oil and Gas Slump Moderates, Outlooks Improve, Says New Dallas Fed Energy Survey

Majority of respondents see global oil market in balance within a year; average expected WTI price $54.80 at end of 2016.

For immediate release: June 29, 2016


Video: Watch senior research economist Michael Plante discuss the survey
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DALLAS—Oil and gas companies’ business activity improved in the second quarter, according to executives responding to the new quarterly Dallas Fed Energy Survey.

The business activity index—the survey’s broadest measure of sentiment among Eleventh District energy firms—turned positive at 13.8, up sharply from -42.1 in the first quarter. Positive readings in the survey generally indicate expansion, while readings below zero generally indicate contraction.

The Dallas Fed began gathering data for the survey in first quarter 2016. The survey samples oil and gas companies in the Eleventh Federal Reserve District—Texas, southern New Mexico and northern Louisiana—many of which have national and global operations.

“I think a key word here is ‘stabilization’ in business conditions,” said Dallas Fed senior research economist Michael D. Plante in a video accompanying the release of the survey. “This time around … a little more than 50 percent of respondents said that their business activity levels were the same as they were in the first quarter. That’s a marked difference from what we found in the first quarter results, when more than half of survey respondents said that business activity levels actually declined.”

Exploration and production (E&P) firms reported oil and natural gas production fell again in the second quarter, but at a slower pace than in the first. The oil production index was -19.7, up from -49.4, and the natural gas production index rose 23 points to -24.7.

Oil and gas (O&G) support services firms reported that declines in equipment use largely abated in the second quarter, with the equipment utilization index rising more than 50 points to come in just below zero, at -1.2.

Outlooks six months out improved, with the index coming in at 19.0, a pronounced reversal from the -24.5 reading in the first quarter. Outlooks were particularly optimistic among E&P firms, with nearly half reporting their view had improved. Reflecting this, the index of expected E&P capital spending in 2017 jumped 40 points to 25.4, suggesting producers have revised upward their expenditure estimates for next year.

Respondents were also asked a set of special questions about balance in the global oil market, and the outlook for oil and natural gas prices (see charts below).

Around a third of respondents think balance will likely occur this year, and over 70 percent believe it will be reached by second quarter 2017. Ninety percent indicated balance would take place by year-end 2017, with 10 percent expecting balance in 2018 or later.

The average expected West Texas Intermediate oil price at year-end was $54.80 per barrel. Price expectations ranged from $35 to $70 per barrel, with most respondents anticipating the price will be higher than its current level.

The average expected Henry Hub natural gas price at year-end was $2.63 per million British thermal units (MMBtu). Price expectations ranged from $1.50 to $3.50 per MMBtu.

Data for the second quarter survey were collected June 15–23, and 152 energy firms responded to the survey. Of the respondents, 67 were E&P firms and 85 were O&G support services firms.

Next release: Sept. 28

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Media contact:
Alexander Johnson
Federal Reserve Bank of Dallas
Phone: (214) 922-5288
Email: alexander.johnson@dal.frb.org