WTI Crude
50.27
Brent Crude
55.60
Natural Gas
3.15

Strength in Oil and Gas Sector Bolsters Industrial Economy, Drives GDP Growth

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The initial report on 1st-quarter Gross Domestic Product (GDP) was weak, but showed encouraging growth in the oil and gas production sector. Capital investment, which has been historically weak since the Great Recession, bounced back to a 9.4% uptick, led by expansion in oil and gas drilling and related equipment.

The Federal Reserve Board earlier reported preliminary 1st-quarter industrial production involving drilling in the oil patch was up 159% over 2016 levels. This accounts for nearly 0.5% of the reported 0.7% GDP growth in the 1st quarter. This expansion bodes well for sustainable growth in the future, as the strength in this sector has outsized impacts on the rest of the economy.

The recent rise in crude oil prices and stability in natural gas prices are behind this new- found growth, but the animal spirits unleashed by the election of President Trump have played an equally large role. Expectations of a freer hand in production, transportation, use and exports of oil and gas also loom large in the revival. It is probably not an idle coincidence that the recent trough in mining sector jobs (which includes oil and gas production) was October 2016.

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Written by Thomas J. Duesterberg for realclearenergy.org

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