Plunging Oil Prices: Impact on the U.S. and State Economies Mine Yücel Senior Vice President and Director of Research November 17, 216
Nominal price, weekly 16 14 Oil and gas prices volatile 12 1 Oil price 8 6 4 $44.61 2 Natural gas price* $2.2 2 22 24 26 28 21 212 214 216 218 *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.
Rig count up and oil production steady Million barrels per day 9.9 8.9 7.9 6.9 U.S. oil rig count 8.69 mb/d (Nov 11) Rig count 1,7 1,5 1,3 1,1 9 5.9 4.9 U.S. crude oil production 7 5 3 3.9 1 26 27 28 29 21 211 212 213 214 215 216 217 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.
U.S. shale oil production Thousand barrels per day 4, 3,5 3, Texas 3,644 3,156 2,5 2, 1,5 1, 5 786 Jan 21 1,793 Mar 215 1,565 Kansas Montana Utah Colorado Wyoming New Mexico Oklahoma Aug 216 236 Jan 21 North Dakota 1,227 Dec 214 975 Aug 216 1,98 Jan 21 Mar 215 Aug 216 SOURCE: Energy Information Administration.
IMPACT ON U.S. ECONOMY
Oil investment plunges Billlions of chained 29 dollars 16 U.S. rig count OPEC decision Rig count 2,2 14 2, 12 1,8 1 8 6 4 Investment in mining/exploration 1,6 1,4 1,2 1, 8 2 6 4 26 27 28 29 21 211 212 213 214 215 216 217 SOURCES: Baker Hughes; Bureau of Economic Analysis.
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) Q1 4 5 9 2.87 Q2 6 7 13 1.2 Q3 14 9 23 9.95 Q4 12 12 24 8.33 Annual 36 33 69 22.18 SOURCE: Haynes and Boone, LLP.
and continued in 216 U.S. Oil and Gas Bankruptcy Filings and Debt, 216 Producers Services All Firms Total Debt (billions USD) Q1 15 14 29 4.73 Q2 27 26 53 45.79 Q3 9 21 3 8.11 October 1 9 1 4.27 Ytd 52 7 122 62.89 NOTE: Bankruptcies for services firms are updated through October 25. Bankruptcies for producers are updated through October 19. SOURCE: Haynes and Boone, LLP.
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 28 27.3 52 49.51 Services 4 4.9 7 13.38 All Firms 68 31.12 122 62.89 NOTE: Bankruptcies for services firms are updated through October 25. Bankruptcies for producers are updated through October 19. SOURCE: Haynes and Boone, LLP.
Low oil prices boosted growth in final demand Contribution to real growth, percentage points, SAAR Components of final demand 4 3 2.3 212:Q2-214:Q2 2 1.8 1.2 214:Q3-216:Q3 1.2.6.1-1 -.4-2 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.
Households benefit from low energy prices and a strong dollar Contribution to real growth, percentage points, SAAR Components of final demand 4 3 2 1.8 2.3 1.2 2. 212:Q2-214:Q2 214:Q3-216:Q3 1.2.2.6.1-1 -.4-2 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.
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 4 3 2 1.8 2.3 1.2 2. 212:Q2-214:Q2 214:Q3-216:Q3 1.2.6.2.1.1-1 -.4-2 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.
Government purchases and the strong dollar have also affected final demand Contribution to real growth, percentage points, SAAR Components of final demand 4 3 2 1.8 2.3 1.2 2. 212:Q2-214:Q2 214:Q3-216:Q3 1.2.6.2.1.2.1-1 -.4 -.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.
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
Savings rates up slightly with low gasoline prices Percent 6. 5.8 5.6 5.4 5.2 5. 4.8 4.6 Personal saving rate Average retail gasoline price (November 216 dollars) Dollars per gallon 3.8 3.6 3.4 3.2 3. 2.8 2.6 2.4 2.2 4.4 213 214 215 216 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.
Energy consumption to GDP ratio continues to fall Index, 1982=1 145 125 15 85 65 45 Total energy consumption (thousand Btu) Real GDP (chained 29 $) 25 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 24 29 214 NOTE: Dashed line is the reference case forecast from the EIA s Annual Energy Outlook (216). SOURCE: Energy Information Administration.
IMPACT ON STATE ECONOMIES
Low oil prices benefit most states (Effect of a 5% decline in oil prices on employment) -2. -4.3 -.7 -.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. 213.
Percent Change (Dec/Dec) 4.5 Energy states did well in 214 4 3.5 TX 3 2.5 U.S. 2 1.5 1.5 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.
Percent Change (Dec/Dec) 5 4 3 2 1-1 -2-3 -4-5 -6 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.
In 216, Texas 21 st in job growth YTD percent change, SAAR 4 3 2 1-1 -2-3 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.
Unemployment rates are up in oil-producing states Percent 1 Oklahoma U.S. 9 Texas 8 North Dakota 7 6 5 4 3 2 1 27 28 29 21 211 212 213 214 215 216 217 NOTE: Shaded bar indicates a U.S. recession. SOURCES: Department of Labor; calculations by the Dallas Fed.
Layoffs have spiked in oil-producing states Index, 4-week moving average, Jan. 213 = 1 15 1 95 9 Major oil-producing states' initial claims (ND, NM, OK, TX, WY, AK, LA) Nov. 5 91.9 85 8 75 7 U.S. initial claims, less major oil-producing states 71.1 65 213 214 215 216 217 SOURCES: Department of Labor; calculations by the Dallas Fed.
Texas job growth outpaces the U.S., especially during energy booms Year-over-year rate (%) 1 8 6 4 2-2 -4 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.
Texas job growth outpaces the U.S., especially during energy booms Year-over-year rate (%) 1 8 6 4 Texas nonfarm payroll employment 2-2 -4-6 -8 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.
Metro employment growth rates diverge Index, Jan. 13=1, SA 12 115 11 15 Dallas Austin San Antonio Houston El Paso 1 Midland & Odessa 95 213 214 215 216 SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal adjustments by FRB Dallas.
Low oil price impacts office market Vacancy rate (percent) 3 25 2 15 1 Dallas/ Ft. Worth San Antonio Houston Austin 5 27 28 29 21 211 212 213 214 215 216 NOTE: Data through Q2 216 for DFW, Houston and Austin; Q1 216 for San Antonio. SOURCES: CBRE.
Rig count Texas rig count ticks up but oil production continues to decline Million barrels per day 1, 4. 9 8 7 6 5 4 Texas oil production 3.5 3. 2.5 2. 3 2 1 Texas rig count 213 214 215 216 1.5 1. NOTE: Last weekly rig count data point is 268 for the week ending November 11. Last monthly production data point is 3.156 mb/d for August 216. SOURCES: Energy Information Administration; Baker Hughes.
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.
Drilling productivity continues to increase New-well oil production per rig, barrels per day 1,4 Eagle Ford 1,2 1, Bakken Permian Basin 8 6 4 2 21 211 212 213 214 215 216 217 SOURCE: Energy Information Administration.
Million barrels per day 4. Texas 3.5 Permian 3. 2.5 2. 1.5 1..5 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.
Existing wells won t be shut in at current prices Dollars per barrel 7 6 5 4 3 Eagle Ford Permian Basin Oklahoma $29 $29 $29 Louisiana $34 Other Texas Other U.S. $37 $38 Onshore Gulf Coast $43 2 1 9 29 8 4 16 21 5 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:.
but prices are still below breakeven for new wells Dollars per barrel 1 9 8 7 6 5 4 3 2 1 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:.
In the current quarter vs. the prior quarter: has your firm s business activity increased, not changed or decreased? Percent reporting / index 8 6 4 Index = -42.1 Decrease No change Increase Index = 13.8 Index = 26.7 44.2 31.6 2 13.9 3.1 5.7 38.3-2 -4-6 17.5 56. 17.8-8 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 15-23 and Sep 14-22. SOURCE:.
Crude Price Forecast Dollars per barrel 12 Historical spot price 1 STEO price forecast NYMEX futures price 8 95% NYMEX futures confidence interval 6 4 2 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 SOURCE: Energy Information Administration.
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.
Plunging Oil Prices: Impact on the U.S. and State Economies Mine Yücel Senior Vice President and Director of Research November 17, 216