WTI Crude
Brent Crude
Natural Gas

Oil price rise lightens mood of Texas oil industry

Written By: 

Click HERE to Read the Article by the Publisher.


The energy industry employs fewer people in Texas than you might think. About 12m people have jobs there, according to the US labour department, of which only 228,000 work in the “mining and logging” sector, which includes oil and gas production.

Still, the oil crash is having a noticeable impact on the state. In the Houston metro area, retail sales dropped 9.8 per cent between the last quarter of 2014 and the last quarter of 2015. Car sales in the area from January to April this year were down 13.2 per cent from the equivalent period of 2015.

So it makes sense for the Federal Reserve Bank of Dallas, which has responsibility for an area including the whole of Texas and parts of Louisiana and New Mexico, to understand the oil and gas industry as well as it possibly can.

In pursuit of that goal, the Dallas Fed has started a new quarterly survey of the region’s oil and gas producers and service companies, asking about subjects including their level of activity, employment, capital spending and price expectations.

The results are intended to help assess the economic health of Texas and its neighbouring states. Coming from a region that is responsible for more than 40 per cent of US crude production, they should also be of interest to anyone in the oil market.

The results from the first published survey, reflecting responses from June 15 to June 23, showed signs that the mood is lightening, thanks to the rebound in crude prices since February. Compared to the previous quarter, more firms said they had cut employment and capital spending than said they had increased them, but there was also a clear pick-up in the reported level of business activity.

About 32 per cent of executives questioned said their activity had picked up since the previous quarter, and only 18 per cent said it had declined (the rest reported no change). Views on the outlook over the next six months have also improved, with 39 per cent of executives saying it has brightened since March, and only 20 per cent saying it had deteriorated.

Predictably, perhaps, the executives are optimists about the oil price. On average, they thought US benchmark West Texas Intermediate would be $54.80 a barrel by the end of the year. That is a shade higher than the $51.74 than the December 2016 futures price on Wednesday evening.

There is a wide range of views, though: from $35 to $70. Either some people are going to be pleasantly surprised, or some others are going to be deeply disappointed.

For gas, meanwhile, the companies were actually more cautious than the market. On average they thought the benchmark gas futures price, known as the Henry Hub, would be $2.63 per million British thermal units at the year-end, when the December contract on the CME was last trading at about $3.28, thanks to the great gas price rebound of recent weeks.

Just because companies are feeling busier and more cheerful, it does not mean they will necessarily start stepping up investment and drilling. Finance is increasingly likely to be a constraint on oil company spending, especially as banks pare back their energy lending.

In a recent article, two analysts from the Dallas Fed observed that, “As the oil price decline that began in the second half of 2014 has lingered into 2016, its impact on some banks has become more pronounced.”

Still, a sustained upturn in activity in Texas will be a momentous event for world oil markets. The Dallas Fed survey will be an important gauge for assessing when that upturn is arriving.

TAGS: Oil, Gas, Energy, Crude

[formidable id=”19″]