2015 economic outlook: implications of lower oil prices · federal reserve bank of dallas 2015...

Federal Reserve Bank of Dallas

2015 Economic Outlook:Implications of Lower Oil Prices

Michael PlanteAmerican Gas Association

Finance Committee MeetingMarch 17, 2015


Disclaimer

Disclaimer 1: The statements in this presentation do not represent the official views of the Federal Reserve Bank of Dallas nor of the Federal Reserve System as a whole.

Disclaimer 2: We are currently in the FOMC blackout period.


Oil and Gas Prices Plunge

0

20

40

60

80

100

120

140

160

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Nominal price, $, weekly

Oil Price

$50.38

$3.04

Natural Gas Price*

*Note: Henry Hub*10Source: Energy Information Administration; Wall Street Journal.


Outline

• How did we get here?– World oil supply/demand balance

• Impact on U.S. economy• Impact on state economies• Where do we go from here?


World Oil Consumption Grew Strongly in 2013

-0.5

0.0

0.5

1.0

1.5

2.0

2013 2014

OECDFSU and Eastern EuropeNon-OECD less FSUWorld

Source: Energy Information Administration

Growth rates,Million barrels per day


World Oil Consumption GrewMuch Slower in 2014

-0.5

0.0

0.5

1.0

1.5

2.0

2013 2014

OECDFSU and Eastern EuropeNon-OECD less FSUWorld




2013 Supply Growth Relatively Weak

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2013 2014

Non-OPEC Production OPEC Production World Production World ConsumptionSource: Energy Information Administration.



Supply Growth Exceeded Demand in 2014

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2013 2014

Non-OPEC Production OPEC Production World Production World ConsumptionSource: Energy Information Administration.



Unexpected Events in 2014H2

• Iraq and Libyan oil production levels– Unexpected growth Sept. – Dec.

• Outcome of OPEC meeting– Saudi Arabia keeps production at high levels

• Outlook for growth in 2015 downgraded– Particularly for developing countries


Energy Prices Down More than Others

40

50

60

70

80

90

100

110

Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15

All Non-EnergyIndustrial MetalsEnergy

Source: S&P; Bloomberg.

GSCI Index, Sept 2, 2014 = 100


Unlike 2008 When Demand Dropped

20

40

60

80

100

120

Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09

All Non-Energy

Industrial Metals

Energy

Source: S&P; Bloomberg.

GSCI Index, Sept 2, 2008 = 100


IMPACT ON U.S. AND STATES


Importance of Oil and Gas to U.S. Economy

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1972 1977 1982 1987 1992 1997 2002 2007 2012

Source: Bureau of Economic Analysis; Bureau of Labor Statistics.

Percent of GDP

Percent of Employment

US GDPUS Employment


Shale Boom Means Production Boom

0

10

20

30

40

50

60

70

80

90

0

2

4

6

8

10

12

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Million barrels per dayBillion cubic feet per day

Natural Gas

Crude Oil

Source: Energy Information Administration.

Feb 2015Estimates


Lower Oil Prices: Impacts on U.S. Economy

• The U.S. benefits from lower oil prices• Boosts consumer disposable income

– Lower gas prices add $750 to household budgets in 2015

• Reduces the cost of energy to firms• Reduces profitability of producing oil

– Layoffs and Capex declines in energy firms

• Recent fall in oil prices may lead to a 0.3% to 1.0% increase in GDP (depending on the model)


Handful of States See Oil Boom

0

500

1000

1500

2000

2500

3000

3500

4000

Jan 2010 Dec 2014 Jan 2010 Dec 2014 Jan 2010 Dec 2014


1,513

Thousand barrels per day

1,227

3,447Texas

North Dakota

UtahColoradoWyomingNew Mexico

Oklahoma

MontanaKansas

786

236

1,098


Regional Effects of the Boom

• Increased energy activity brings oil and gas extraction and oil-field support jobs

• Local areas: – lease and royalty payments,– infrastructure construction and – increased spending on various services

• Governments: Greater tax revenues


-2.0

-4.3

-2.3-0.7

-1.2 -1.6

-1.7

-0.7

Low Oil Prices Benefit Most States(Effect of a 50% decline in oil prices on employment)


Energy-related Employment Shares

0

2

4

6

8

10

12

14

2000 2013 2000 2013 2000 2013 2000 2013 2000 2013 2000 2013 2000 2013 2000 2013Oil & gas operations Petrochemicals Oil field equipment Coal mining Refining

Percentage of nonagricultural employment

Alaska Louisiana North Dakota

New Mexico

Oklahoma Texas West Virginia

Wyoming


WHERE DO WE GO FROM HERE?


Outlook for Supply and Demand in 2015

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-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2013 2014 2015

Non-OPEC Production OPEC Production World Production World Consumption


Million barrels per dayForecast


0

20

40

60

80

100

120

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16

Historical Spot Price

STEO Price Forecast

NYMEX Futures Price

95% NYMEX Futures Confidence Interval

Dollars per barrel


EIA Expects Spot Prices to Rise


Outlook for Texas

• Oil and gas: 13 percent of GDP, 2.6 percent of jobs

• Dollar has also appreciated significantly

• Expecting slower job growth in 2015– 2014 growth was 3.4 percent (+389,000 jobs)

• Latest employment data already showing slowdown


Concluding Remarks

• Oil market will adjust– Lower prices will slow supply growth and spur demand

• Global economy expected to continue growing

• Modest, positive benefits for U.S. economy

• But benefits not evenly distributed across 50 states


2015 Economic Outlook:Implications of Lower Oil Prices

Michael PlanteAmerican Gas Association

Finance Committee MeetingMarch 17, 2015

2015 economic outlook: implications of lower oil prices · federal reserve bank of dallas 2015...

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