Plunging Oil Prices: Impact on the U.S. and State Economies

Transcription

1 Plunging Oil Prices: Impact on the U.S. and State Economies Mine Yücel Senior Vice President and Director of Research November 17, 216

2 Nominal price, weekly Oil and gas prices volatile 12 1 Oil price $ Natural gas price* $ *Natural gas price is multiplied by ten. Oil is priced in $/barrel, while natural gas is priced in $/million British thermal units. Last data points are for the week ending November 11, 216. SOURCES: Energy Information Administration; Wall Street Journal.

3 Rig count up and oil production steady Million barrels per day U.S. oil rig count 8.69 mb/d (Nov 11) Rig count 1,7 1,5 1,3 1, U.S. crude oil production NOTE: Last monthly production data is 8.7 mb/d for August. Nov 11 data point is a weekly estimate. SOURCES: Energy Information Administration; Baker Hughes.

4 U.S. shale oil production Thousand barrels per day 4, 3,5 3, Texas 3,644 3,156 2,5 2, 1,5 1, Jan 21 1,793 Mar 215 1,565 Kansas Montana Utah Colorado Wyoming New Mexico Oklahoma Aug Jan 21 North Dakota 1,227 Dec Aug 216 1,98 Jan 21 Mar 215 Aug 216 SOURCE: Energy Information Administration.

5 IMPACT ON U.S. ECONOMY

6 Oil investment plunges Billlions of chained 29 dollars 16 U.S. rig count OPEC decision Rig count 2,2 14 2, 12 1, Investment in mining/exploration 1,6 1,4 1,2 1, SOURCES: Baker Hughes; Bureau of Economic Analysis.

7 Oil and gas bankruptcies rose in 215 U.S. Oil and Gas Bankruptcy Filings and Debt, 215 Producers Services All Firms Total Debt (billions USD) Q Q Q Q Annual SOURCE: Haynes and Boone, LLP.

8 and continued in 216 U.S. Oil and Gas Bankruptcy Filings and Debt, 216 Producers Services All Firms Total Debt (billions USD) Q Q Q October Ytd NOTE: Bankruptcies for services firms are updated through October 25. Bankruptcies for producers are updated through October 19. SOURCE: Haynes and Boone, LLP.

9 Most of 216 bankruptcies are in Texas Oil and Gas Bankruptcy Filings and Debt, May 16, 216 Texas U.S. Bankruptcies Total Debt (billions USD) Bankruptcies Total Debt (billions USD) Producers Services All Firms NOTE: Bankruptcies for services firms are updated through October 25. Bankruptcies for producers are updated through October 19. SOURCE: Haynes and Boone, LLP.

10 Low oil prices boosted growth in final demand Contribution to real growth, percentage points, SAAR Components of final demand :Q2-214:Q :Q3-216: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.

11 Households benefit from low energy prices and a strong dollar Contribution to real growth, percentage points, SAAR Components of final demand :Q2-214:Q2 214:Q3-216: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.

12 Mining and manufacturing firms have scaled back cap ex plans, and investment growth has slowed Contribution to real growth, percentage points, SAAR Components of final demand :Q2-214:Q2 214:Q3-216: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.

13 Government purchases and the strong dollar have also affected final demand Contribution to real growth, percentage points, SAAR Components of final demand :Q2-214:Q2 214:Q3-216: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.

14 Why didn t low oil prices have a larger positive effect on the economy? Oil price changes have asymmetric effects on the economy Increases in oil prices impact the economy more than oil price declines Oil price increase: Σ (negative reallocation effects + negative price effects) Oil price decline: Σ (negative reallocation effects + positive price effects) Increased saving

15 Savings rates up slightly with low gasoline prices Percent Personal saving rate Average retail gasoline price (November 216 dollars) Dollars per gallon NOTES: 216 gasoline price is a forecast. 216 savings rate is the monthly average through September. SOURCES: Bureau of Economic Analysis; Bureau of Labor Statistics; Energy Information Administration; calculations by the Dallas Fed. 2.

16 Energy consumption to GDP ratio continues to fall Index, 1982= Total energy consumption (thousand Btu) Real GDP (chained 29 $) NOTE: Dashed line is the reference case forecast from the EIA s Annual Energy Outlook (216). SOURCE: Energy Information Administration.

17 IMPACT ON STATE ECONOMIES

18 Low oil prices benefit most states (Effect of a 5% 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. 213.

19 Percent Change (Dec/Dec) 4.5 Energy states did well in TX U.S 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 SOURCE: Bureau of Labor Statistics.

20 Percent Change (Dec/Dec) Energy states lost jobs in 215 U.S. 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 TX SOURCE: Bureau of Labor Statistics.

21 In 216, Texas 21 st in job growth YTD percent change, SAAR TX U.S. -4 FL NV OR WA UT MA SDHI 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 SOURCE: Bureau of Labor Statistics.

22 Unemployment rates are up in oil-producing states Percent 1 Oklahoma U.S. 9 Texas 8 North Dakota NOTE: Shaded bar indicates a U.S. recession. SOURCES: Department of Labor; calculations by the Dallas Fed.

23 Layoffs have spiked in oil-producing states Index, 4-week moving average, Jan. 213 = Major oil-producing states' initial claims (ND, NM, OK, TX, WY, AK, LA) Nov U.S. initial claims, less major oil-producing states SOURCES: Department of Labor; calculations by the Dallas Fed.

24 Texas job growth outpaces the U.S., especially during energy booms Year-over-year rate (%) Texas nonfarm payroll employment TX average = 2.6% -6-8 mid-197s to early 198s 26- recent oil boom energy boom '71 '74 '77 '8 '83 '86 '89 '92 '95 '98 '1 '4 '7 '1 '13 '16 NOTE: Shaded bars indicate U.S. recessions. SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; authors' calculations.

25 Texas job growth outpaces the U.S., especially during energy booms Year-over-year rate (%) Texas nonfarm payroll employment mid-197s to early 198s oil boom U.S. nonfarm payroll employment 26- recent energy boom '71 '74 '77 '8 '83 '86 '89 '92 '95 '98 '1 '4 '7 '1 '13 '16 NOTE: Shaded bars indicate U.S. recessions. SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; authors' calculations.

26 Metro employment growth rates diverge Index, Jan. 13=1, SA Dallas Austin San Antonio Houston El Paso 1 Midland & Odessa SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal adjustments by FRB Dallas.

27 Low oil price impacts office market Vacancy rate (percent) Dallas/ Ft. Worth San Antonio Houston Austin NOTE: Data through Q2 216 for DFW, Houston and Austin; Q1 216 for San Antonio. SOURCES: CBRE.

28 Rig count Texas rig count ticks up but oil production continues to decline Million barrels per day 1, Texas oil production Texas rig count NOTE: Last weekly rig count data point is 268 for the week ending November 11. Last monthly production data point is mb/d for August 216. SOURCES: Energy Information Administration; Baker Hughes.

29 Permian rig count has ticked up since April Change in rig count less than -5-4 to -1 1 to 5 6 to 1 11 or more NOTE: Plot shows the rig count as of November 11 minus the count as of April 1. SOURCES: Energy Information Administration; Baker Hughes.

30 Drilling productivity continues to increase New-well oil production per rig, barrels per day 1,4 Eagle Ford 1,2 1, Bakken Permian Basin SOURCE: Energy Information Administration.

31 Million barrels per day 4. Texas 3.5 Permian Eagle Ford declines have more than offset steady Permian in Texas Eagle Ford. Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 NOTES: Eagle Ford and Permian series are from the EIA s Drilling Productivity Report. Dashed lines are forecasts through December 216. Actual data are through August 216. SOURCE: Energy Information Administration.

32 Existing wells won t be shut in at current prices Dollars per barrel Eagle Ford Permian Basin Oklahoma $29 $29 $29 Louisiana $34 Other Texas Other U.S. $37 $38 Onshore Gulf Coast $ Number of responses Eagle Ford Permian Basin Oklahoma Louisiana Other Texas Other U.S. Onshore Gulf Coast NOTES: Line depicts the mean and bars depict the range of responses. 69 E&P firms answered this question from March 16-24, 216. Other U.S. includes Bakken, Kansas, Gulf of Mexico and others. SOURCE:.

33 but prices are still below breakeven for new wells Dollars per barrel Permian Basin Eagle Ford Other U.S. Other Texas Oklahoma Louisiana $5 $51 $53 $55 $55 $56 Onshore Gulf Coast Louisiana 3 Permian 28 Basin Eagle 8 Ford Other 18 U.S. Other 11 Texas Oklahoma 8 Onshore 5 Gulf Coast Number of responses $62 NOTES: Line depicts the mean and bars depict the range of responses. 63 E&P firms answered this question from March 16-24, 216. Other U.S. includes Bakken, Kansas, Gulf of Mexico and others. SOURCE:.

34 In the current quarter vs. the prior quarter: has your firm s business activity increased, not changed or decreased? Percent reporting / index Index = Decrease No change Increase Index = 13.8 Index = First quarter 216 Second quarter 216 Third quarter 216 NOTES: Percent reporting decrease is plotted as a negative value. Percent reporting no change is plotted symmetrically around zero. Responses were collected Mar 16-24, Jun and Sep SOURCE:.

35 Crude Price Forecast Dollars per barrel 12 Historical spot price 1 STEO price forecast NYMEX futures price 8 95% NYMEX futures confidence interval Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 SOURCE: Energy Information Administration.

36 Outlook Plunge in oil prices helped consumers and the overall economy but slowed growth in energy states. Small energy states still in recession. Large, diversified states such as Texas skirted recession. Effect of low oil prices on economy not as strong as expected The decline in oil prices coincident with a strong dollar and slower global growth Hurt U.S. manufacturing and exports The U.S. and energy importers should continue to benefit from low oil prices Rough patch for energy-producing states.

37 Plunging Oil Prices: Impact on the U.S. and State Economies Mine Yücel Senior Vice President and Director of Research November 17, 216