Oil & The Economy: Boom-to-Bust and the Impact to States.

Transcription

1 Oil & The Economy: Boom-to-Bust and the Impact to States. Jesse Thompson Business Economist Houston Branch January, 2017

2 U.S. Oil U.S. Production & Rig Surged Count U.S. crude oil production Million barrels per day 11 U.S. natural gas production Billion cubic feet per day NOTE: Natural gas series is marketed production. SOURCE: Energy Information Administration.

3 OPEC Oil OPEC Production Production & Rig Up Count Million barrels per day 33.5 Nov NOTES: OPEC is the Organization of the Petroleum Exporting Countries. Dashed line represents a forecast. SOURCE: Energy Information Administration.

4 World Oil Supply & Demand World Oil Market Oversupplied Million barrels per day World production Q World consumption 91 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q NOTE: Dashed lines represent forecasts. SOURCE: Energy Information Administration.

5 Brent & WTI & Crude Brent Oil Crude Oil Dollars per barrel Brent 95% confidence bands for WTI WTI NOTES: Latest prices are averages for the week ending 12/2/16. Dashed lines are forward curves. WTI is West Texas Intermediate. SOURCES: Bloomberg; Energy Information Administration.

6 Mining Investment Plunges Billlions of chained U.S. rig count OPEC decision Rig count 2,200 2, , , Investment in mining/exploration 1,400 1,200 1, Sources: Baker Hughes; Bureau of Labor Statistics

7 Gasoline Demand U.S. Oil & Gas Jobs Plunge Number of jobs (thousands) Support activities for oil and gas Oil and gas extraction NOTE: Series are seasonally adjusted. SOURCE: Bureau of Labor Statistics.

8 Economic Conditions

9 Final Demand Boosted Contribution to real growth, percentage points, SAAR 4 Components of final demand :Q2-2014:Q2 2014:Q3-2016:Q Final demand Personal consumption Residential investment Business fixed investment Government Net exports NOTE: Components do not sum exactly to final demand due to rounding. SOURCE: Bureau of Economic Analysis.

10 Cheaper Oil Benefits Most States (Effect of a 50% decline in oil prices on employment) SOURCE: The Shale Gas and Tight Oil Boom: U.S. States Economic Gains and Vulnerabilities, by Stephen P.A. Brown and Mine K. Yücel, Council on Foreign Relations, Energy Brief, Oct

11 NV ND CO TX FL GA OR UT WA CA SC DE MA TN ID NC U.S. AR AZ RI LA OK MI NY OH KY WY WI NM INIL MO MD AL PA MN SD KS CT NJ NH IA NE MS VA ME MT HI VT AK WV Energy States Did Well in 2014 Percent Change (Dec/Dec) TX U.S SOURCE: Bureau of Labor Statistics.

12 ID UT FL OR AZ CA TN CO GA SC WA VA DE NV AR HI NJ NC U.S. KY MI IN MD NH NE MN TX OH MS NY MT IA MA RI SD WI AL VT IL MO PA CT ME NM KS AK OK LA WV WY ND Energy Lost Jobs in 2015 Percent Change (Dec/Dec) 5 4 Energy states lost jobs in U.S. TX -6 SOURCE: Bureau of Labor Statistics.

13 FL NV OR WA UT MA SD HI SC CA GA CO NH MO NC DE ID VT TN TX U.S. AZ VA MN MD MI NY IA INIL WI AL AR PA KY OH ME RI NE NJ CT MT MS WV KS OK ND NM LA AK WY Texas 21 st in Job Growth in 2016 YTD percent change, SAAR TX U.S SOURCE: Bureau of Labor Statistics.

14 Unemployment Up In Oil-States Percent Oklahoma U.S. Texas North Dakota NOTE: Shaded bar indicates a U.S. recession. SOURCES: Department of Labor; calculations by the Dallas Fed.

15 Initial Claims Higher in Oil-States Index, 4-week moving average, Jan = Major oil-producing states' initial claims (ND, NM, OK, TX, WY, AK, LA) U.S. initial claims, less major oil-producing states SOURCES: Department of Labor; calculations by the Dallas Fed.

16 TX Job Growth Outpaces U.S. Year-over-year rate (%) Texas nonfarm payroll employment mid-1970s to early 1980s oil boom U.S. nonfarm payroll employment recent energy boom '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13 '16 NOTE: Shaded bars indicate U.S. recessions. SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; authors' calculations.

17 TX Job Growth Outpaces U.S. Index, Jan. 13=100, SA Dallas Austin San Antonio 105 Houston El Paso Midland & Odessa SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal adjustments by FRB Dallas.

18 Oil Impacts TX Office Market Vacancy rate (percent) Dallas/ Ft. Worth San Antonio Houston Austin NOTE: Data through Q for DFW, Houston and Austin; Q for San Antonio. SOURCES: CBRE.

19 Refining & Petrochemicals

20 Refining & Petrochemicals Cheaper raw materials Crude oil and NGLs Cheaper heat and electricity NGLs, Natural Gas Methane Now Much Cheaper than Oil Boost to Refiner and Chemical Margins

21 Shale Boom Drives Downstream Oil/Gas Ratio 8 Dollar Spread Brent Spread WTI/HH SOURCES: Energy Information Administration.

22 Construction Surging Billions of dollars 20 Number of projects Value of projects delivered Number of projects delivered $55 Billion in capital Investments announced in Houston-area alone Note: Data are value of construction projects delivered. SOURCE: Baytown Economic Development Foundation. Institute for regional forecasting

23 Outlook

24 Price, Drilling, & Production Up Index, June 2014= MIllions of barrels per day U.S. rig count 8.84 mb/d U.S. crude oil production WTI price Note: dashed red line indicate estmate based on weekly data. SOURCE: EIA, Baker Hughes.

25 Oil-Related Jobs Turning in TX Percent change ~158K Core Oil-&-Gas-Related Jobs Lost 12/2015 to 09/ Fabricated metals* Machinery and equipment suppliers Total Oil & gas extraction Support activities for mining Agriculture, construction, and mining machinery manufacturing * Excludes architectural and structural metals manufacturing Note: data are three-month annual changes. SOURCE: Bureau of Labor Statistics. Seasonal and other

26 Breakeven Prices for New Wells Dallas Fed Energy Survey In the top two areas in which your firm is active: What WTI oil price does your firm need to profitably drill a new well? Dollars per barrel Permian Basin Eagle Ford Other U.S. Other Texas Oklahoma Louisiana $50 $51 $53 $55 $55 $56 Louisiana Permian Basin Onshore Gulf Coast $62 Eagle Ford Other U.S. Other Texas Oklahoma Onshore Gulf Coast Number of responses NOTES: Line depicts the mean and bars depict the range of responses. 63 E&P firms answered this question from March 16-24, Other U.S. includes Bakken, Kansas, and Gulf of Mexico, among other responses. SOURCE:.

27 Punchline Oil price drop helped consumers and the overall economy but slowed growth in energy states. Benefit of low oil prices to the economy softened by strong dollar and slower global growth. Rough patch for energy-producing states. Texas forecast to grow 1-2% in >2 016: Revenues, capex and hiring will likely improve Financial distress remains for some.

28 Additional Resources Quarterly Energy Update The Quarterly Energy Update is a brief overview of the latest developments in global oil and gas markets. The update highlights shifts in the outlook for world oil production, consumption and inventories, and reviews how data reflecting U.S. activity, OPEC output and prices have evolved over the last three months. Dallas Fed Energy Survey The Dallas Fed Energy Survey is a quarterly questionnaire sent to around 200 oil and gas firms located in Texas, northern Louisiana and southern New Mexico. A summary report released after each survey round describes how key business indicators like production and capital spending have changed since the prior survey. Energy in the 11 th District Energy in the 11 th District provides detailed background info on four major oil and natural gas producing regions: the Barnett Shale, Eagle Ford Shale, Haynesville Shale and Permian Basin. Monthly and quarterly updates depict the latest county-level data on production, drilling, employment and sales in each region. Other energy articles and research Click here to contact us for general information or other inquiries.

29 Additional Resources Texas Economic Indicators Regional Economic Updates National Economic Updates International Economic Updates Research Publications St. Louis Federal Reserve Economic Data

30 Oil & The Economy: Boom-to-Bust and the Impact to States. Jesse Thompson Business Economist Houston Branch January, 2017