Dallas Fed

Activity in the oil and gas sector deteriorated further in second quarter 2020, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—fell from -50.9 in the first quarter to -66.1 in the second quarter. It was the lowest reading in the survey’s four-year history and indicative of significant contraction in activity. The business activity index for oilfield services firms plunged from -46.3 to -73.5, while the business activity index for exploration and production (E&P) firms fell from -53.3 to -62.6.

Production indexes suggest oil and gas production sank relative to the previous quarter. According to E&P executives, the oil production index declined sharply, falling 36 points to -62.6. The natural gas production index also fell significantly, from -21.2 to -47.8. The oil production index is at its lowest point in the survey’s four-year history.

The index for capital expenditures for E&P firms declined from -49.0 in the first quarter to -66.1 in the second, indicating a further reduction in capital spending. Additionally, the index for capital expenditures for oilfield services firms declined from -50.0 to -73.5.

Most indexes point to worsening conditions among oilfield services firms. The equipment utilization index fell from -47.2 in the first quarter to -69.2 in the second, a survey low. The operating margins index dropped from -50.0 to -68.6. While firms found relief as input costs collapsed—that index fell from -11.3 to -50.0—the index of prices received for services also slid further into negative territory, from -37.7 to -64.7.

The aggregate employment index posted a fifth consecutive negative reading, declining from -24.0 to -46.1, which suggests an acceleration in job cuts. Additionally, the aggregate employee hours worked index dropped from -32.1 to -47.0. The index for aggregate wages and benefits fell further into negative territory, from -8.2 to -41.7.

The company outlook index reading improved but remained deeply negative at -51.0 in the second quarter, indicating outlooks deteriorated. While uncertainty remained elevated, slightly fewer firms noted rising uncertainty this quarter than last, and the aggregate index fell 28 points to 35.7.

On average, respondents expect a West Texas Intermediate (WTI) oil price of $42.11 per barrel by year-end 2020, with responses ranging from $22 to $65 per barrel. Survey participants expect Henry Hub natural gas prices to be $2.15 per million British thermal units (MMBtu) by year-end. For reference, WTI spot prices averaged $37.75 per barrel during the survey collection period, and Henry Hub spot prices averaged $1.61 per MMBtu.

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