Texas energy sector falls flat
Dallas Fed says fourth quarter prices fell 40%
Growth in the Texas energy sector came to an abrupt halt in the fourth quarter as oil prices plummeted 40 percent in the last three months of 2018, according to survey data Thursday from Federal Reserve Bank of Dallas
The survey, which polls oil and gas executives in the region, found that activity virtually flatlined near the end of the year. The survey’s associated business activity index, which the Dallas Fed considers the the broadest measure of the health of the energy sector, plunged from a score of 43.3 in the third quarter to 2.3 in the final three months of the year. The results remained positive, which mean the sector is still growing , but just barely.
Energy executives were less optimistic about what lays ahead. The Fed’s company outlook index, which measures views of future conditions, recorded its first negative result since early 2016 when the last oil bust bottomed out at $26 a barrel.
This time around, oil prices have sunk from more than $76 a barrel in early October down to a low of $42 per barrel in late December because of fears of a global glut of oil, driven by the combination of record production from the United States and slowing demand worldwide.
Crude settled in New York on Thursday at $47.09 a barrel, up 55 cents for the day.
Analysts are watching to see if OPEC nations — led by Saudi Arabia — and allies like Russia decrease their crude oil production levels as promised through the first six months of the year and possibly beyond. Uncertainty about global economic growth and its impact on oil demand, es-
pecially in Asia, also is also weighing on prices, said Karr Ingham, an economist for the trade group Texas Alliance of Energy Producers
“It seems like we’re at a bit of a precipice right now,” Ingham said. “If prices stabilize in the first quarter and then go up a bit, then we’d be in pretty good shape.”
The Federal Reserve district surveyed consists of Texas, northern Louisiana and southern New Mexico.
The Dallas Fed survey was conducted from Dec. 12 to Dec. 20 with the participation of 167 energy companies. The U.S. oil benchmark fell from more than $51 a barrel down to below $46 during that time frame.
The survey is the latest sign that oil companies, which built budgets assuming higher prices, could cut back. ConocoPhillips said it wouldn’t increase its capital budget, which finances drilling projects, in 2019. Producers in West Texas’ Permian Basin, such as Diamondback Energy and Parsley Energy, said they’re reducing the number of drilling rigs they’re running
“I can’t help but feel we are in for another extended period of low prices,” one executive told the Dallas Fed. “The only way for me to survive is to quit spending money.”
Another said, “I expect the dramatic, unexpected and significant drop in oil prices will significantly decrease revenue for the first half of 2019. I intend to mitigate this by stopping all drilling and deferring any new projects.”
Others were critical of President Donald Trump for weakening the oil exporting sanctions on Iran at the last minute and for encouraging Saudi Arabia and other OPEC nations to churn out more oil in order to decrease gasoline prices. Some complained about the increased pricing of steel prices from the new tariffs on steel.
One respondent argued, “The biggest distraction to conducting business is the uncertainty provided by the erratic and dysfunctional behavior of the current presidential administration.”