Federal Reserve of Dallas: Oil and gas slump moderates, outlook improves

Expected E&P capital spending in 2017 jumped 40 points to 25.4, suggesting producers are boosting CAPEX

outlookBusiness activity improved in the second quarter, according to oil and gas executives responding to a recent Dallas Fed Energy Survey.

The business activity index—the survey’s broadest measure of sentiment among Eleventh District energy firms—turned positive at 13.8, up sharply from -42.1 in the first quarter.

The majority of respondents reported business activity was stable from first-quarter levels, while nearly a third reported activity expanded.

Most survey indicators were less negative, suggesting some moderation of the strong declines reported in the first quarter.

Outlooks improved or held steady for most firms, in a marked shift from last quarter.

Exploration and production firms reported oil and natural gas production fell again in the second quarter, but at a slower pace than in the first.

The oil production index was -19.7, up from -49.4, and the natural gas production index rose 23 points to -24.7.

Oil and gas support services firms reported that declines in equipment use largely abated in the second quarter, with the equipment utilization index rising more than 50 points to come in just below zero, at -1.2.

The prices received for services index pushed up over 25 points to -32.1, but the still-negative reading suggests demand for oil and gas support services remained depressed.

Labor market indicators suggested cuts to jobs, hours and compensation continued this quarter, but were less widespread.

The employment index moved up to -19.7, with 11 percent of firms noting net hiring and 31 percent noting net layoffs.

The employee hours and wages and benefits indexes also rose but remained contractionary at -16.5 and -18.4,respectively.

Capital spending declines also moderated in the second quarter, particularly among services firms.

The aggregate capital expenditures index came in at -9.3, up markedly from -46.6 last quarter when nearly 60 per cent of firms reported trimmed spending. This quarter that share was cut in half, to roughly 30 per cent.

Outlooks six months out improved, with the index coming in at 19.0, a pronounced reversal from -24.5 last quarter. Outlooks were particularly optimistic among E&P firms, with nearly half reporting their view had improved.

Expected E&P capital spending in 2017 jumped 40 points to 25.4, suggesting producers have revised upward their expenditure estimates for next year.

Respondents remained bullish on prices. Over 70 per cent of firms expect oil will fetch a higher price one year from now, and more than 50 per cent expect higher natural gas prices.

Posted in: USA

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