Oil and gas activity increases; outlook improves, says new Dallas Fed Energy Survey
For Immediate Release: Dec. 29, 2016
Respondents more bullish despite some skepticism about oil producer agreements
DALLAS—Oil and gas business activity continued to increase in the fourth quarter, according to executives responding to the Federal Reserve Bank of Dallas’ quarterly Dallas Fed Energy Survey.
Outlooks also improved, despite some skepticism about whether OPEC and non-OPEC countries will enforce agreements limiting crude oil production, which respondents commented on in this quarter’s special questions. (More on the OPEC agreement’s impact on the global market can be found in the Dallas Fed’s Quarterly Energy Update).
The business activity index—the survey’s broadest measure of conditions among Eleventh Federal Reserve District energy firms—rose to 40.1 from 26.7 in the third quarter. Positive readings in the survey generally indicate expansion, while readings below zero generally indicate contraction.
“The oil and gas sector is entering 2017 on a positive note, as activity continued growing in the fourth quarter and outlooks improved significantly,” said Dallas Fed senior economist Michael D. Plante.
The survey samples oil and gas companies headquartered in the Eleventh Federal Reserve District—Texas, southern New Mexico and northern Louisiana—many of which have national and global operations.
Labor market indexes turned positive for the first time all year, although the majority of respondents continued to report unchanged headcounts. The employment index came in at 3.4, with 18 percent of firms noting net hiring and 15 percent noting net layoffs.
Exploration and production (E&P) firms reported oil and natural gas production stopped declining this quarter after falling throughout the year. The oil production index surged nearly 20 points to 9.0, and the natural gas production index was 3.1, up from –20.6 last quarter.
Oil and gas support services firms reported that equipment use rose again in the fourth quarter, driving the equipment utilization index up to 35.9.
Outlooks six months out improved markedly; the company outlook index shot up 38 points to 57.1. Capital expenditures rose at a faster quarter-over-quarter pace, as did E&P firm’s expectations of 2017 capital spending. Respondents were more bullish than last quarter about oil prices one-year ahead, but mixed on natural gas prices: 71 percent expect higher oil prices a year from now, while 50 percent expect higher gas prices.
Respondents were also asked a set of special questions.
When asked about recent agreements by OPEC and some non-OPEC countries to limit production, oil and gas executives were split, but most were doubtful. Only 42 percent of respondents expect these production agreements to be enforced, while 58 percent believe they will not be enforced.
In light of these developments, about 44 percent of respondents expect the global oil market to come into balance in third quarter 2017. Furthermore, more than half of surveyed executives revised up their 2017 oil price forecasts and company outlooks in response to announced production cuts.
Panelists were also invited to provide comments on recent transactions and acreage prices in the Permian Basin and whether acreage prices in the Permian or other areas are likely to remain or become a concern in 2017.
Data were collected Dec. 14–22, and 147 energy firms responded to the survey. Of the respondents, 67 were E&P firms, and 80 were oilfield services firms.
Next release: March 29.
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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org