Oil & The Economy: Boom-to-Bust and the Impact to States. Jesse Thompson Business Economist Houston Branch January, 2017
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 110 10 100 9 90 8 80 7 70 6 60 5 50 4 40 3 30 2 20 1 10 1921 1929 1937 1945 1953 1961 1969 1977 1985 1993 2001 2009 2017 NOTE: Natural gas series is marketed production. SOURCE: Energy Information Administration.
OPEC Oil OPEC Production Production & Rig Up Count Million barrels per day 33.5 Nov. 33.2 33.0 32.5 32.0 31.5 31.0 30.5 30.0 29.5 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NOTES: OPEC is the Organization of the Petroleum Exporting Countries. Dashed line represents a forecast. SOURCE: Energy Information Administration.
World Oil Supply & Demand World Oil Market Oversupplied Million barrels per day 99 98 97 96 95 World production Q3 2016 96.3 96.2 94 93 92 World consumption 91 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 2017 NOTE: Dashed lines represent forecasts. SOURCE: Energy Information Administration.
Brent & WTI & Crude Brent Oil Crude Oil Dollars per barrel 140 120 100 Brent 95% confidence bands for WTI 80 60 WTI 40 20 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 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.
Mining Investment Plunges Billlions of chained 2009 160 140 U.S. rig count OPEC decision Rig count 2,200 2,000 120 1,800 100 1,600 80 60 Investment in mining/exploration 1,400 1,200 1,000 40 800 20 600 0 400 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sources: Baker Hughes; Bureau of Labor Statistics
Gasoline Demand U.S. Oil & Gas Jobs Plunge Number of jobs (thousands) 420 380 340 300 260 220 180 Support activities for oil and gas Oil and gas extraction 140 100 2005 2007 2009 2011 2013 2015 2017 NOTE: Series are seasonally adjusted. SOURCE: Bureau of Labor Statistics.
Economic Conditions
Final Demand Boosted Contribution to real growth, percentage points, SAAR 4 Components of final demand 3 2 1.8 2.4 1.2 2.0 2012:Q2-2014:Q2 2014:Q3-2016:Q3 1 0 0.2 0.2 0.6 0.1 0.2 0.1-1 -0.4-0.3-2 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.
Cheaper Oil Benefits Most States (Effect of a 50% decline in oil prices on employment) -2.0-4.3-0.7-0.7-2.3-1.7-1.2-1.6 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. 2013.
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) 4.5 4 TX 3.5 3 2.5 U.S. 2 1.5 1 0.5 0 SOURCE: Bureau of Labor Statistics.
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 2015 3 2 1 0-1 -2-3 -4-5 U.S. TX -6 SOURCE: Bureau of Labor Statistics.
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 4 3 2 1 TX U.S. 0-1 -2-3 -4 SOURCE: Bureau of Labor Statistics.
Unemployment Up In Oil-States Percent 10 9 8 7 Oklahoma U.S. Texas North Dakota 6 5 4 3 2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 NOTE: Shaded bar indicates a U.S. recession. SOURCES: Department of Labor; calculations by the Dallas Fed.
Initial Claims Higher in Oil-States Index, 4-week moving average, Jan. 2013 = 100 105 100 Major oil-producing states' initial claims (ND, NM, OK, TX, WY, AK, LA) 95 90 85 80 75 70 U.S. initial claims, less major oil-producing states 65 2013 2014 2015 2016 2017 SOURCES: Department of Labor; calculations by the Dallas Fed.
TX Job Growth Outpaces U.S. Year-over-year rate (%) 10 8 6 Texas nonfarm payroll employment 4 2 0-2 -4-6 -8 mid-1970s to early 1980s oil boom U.S. nonfarm payroll employment 2006- 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.
TX Job Growth Outpaces U.S. Index, Jan. 13=100, SA 120 115 110 Dallas Austin San Antonio 105 Houston El Paso 100 95 2013 2014 2015 2016 Midland & Odessa SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal adjustments by FRB Dallas.
Oil Impacts TX Office Market Vacancy rate (percent) 26 24 22 20 18 16 14 12 10 8 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Dallas/ Ft. Worth San Antonio Houston Austin NOTE: Data through Q2 2016 for DFW, Houston and Austin; Q1 2016 for San Antonio. SOURCES: CBRE.
Refining & Petrochemicals
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
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Shale Boom Drives Downstream Oil/Gas Ratio 8 Dollar Spread 30 7 6 5 Brent Spread WTI/HH 25 20 15 4 10 3 5 2 0 1-5 0-10 SOURCES: Energy Information Administration.
Construction Surging Billions of dollars 20 Number of projects 35 18 16 Value of projects delivered Number of projects delivered 30 14 25 12 20 10 8 6 $55 Billion in capital Investments announced in Houston-area alone. 15 10 4 2 5. 0 2015 2016 2017 2018 2019 2020 2021 0 Note: Data are value of construction projects delivered. SOURCE: Baytown Economic Development Foundation. Institute for regional forecasting
Outlook
Price, Drilling, & Production Up Index, June 2014=100 110 MIllions of barrels per day 10.0 95 9.5 80 U.S. rig count 8.84 mb/d 9.0 65 U.S. crude oil production 8.5 50 8.0 WTI price 35 7.5 20 2013 2014 2015 2016 7.0 Note: dashed red line indicate estmate based on weekly data. SOURCE: EIA, Baker Hughes.
Oil-Related Jobs Turning in TX Percent change 25 15 5 ~158K Core Oil-&-Gas-Related Jobs Lost 12/2015 to 09/2016-5 -15-25 -35-45 -55 Fabricated metals* Machinery and equipment suppliers Total Oil & gas extraction Support activities for mining Agriculture, construction, and mining machinery manufacturing 2014 2015 2016 * Excludes architectural and structural metals manufacturing Note: data are three-month annual changes. SOURCE: Bureau of Labor Statistics. Seasonal and other
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 100 90 80 70 60 50 40 30 20 10 0 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 3 28 8 18 11 8 5 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, 2016. Other U.S. includes Bakken, Kansas, and Gulf of Mexico, among other responses. SOURCE:.
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 2017. 2017 >2 016: Revenues, capex and hiring will likely improve Financial distress remains for some.
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.
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Oil & The Economy: Boom-to-Bust and the Impact to States. Jesse Thompson Business Economist Houston Branch January, 2017