the oil market: from boom to gloom - dallasfed.org/media/documents/... · federal reserve bank of...

Federal Reserve Bank of Dallas

The Oil Market: From Boom to Gloom

Mine Yücel Senior Vice President and

Director of Research Federal Reserve Bank of Dallas

April 8, 2016


Oil and gas prices plunge

0

20

40

60

80

100

120

140

160

2000 2002 2004 2006 2008 2010 2012 2014 2016

Oil price

Natural gas price*

$37.67

$1.83

Nominal price, $, weekly

NOTE: * = Natural gas price is multiplied by 10. Oil is priced in $/barrel while natural gas is $/MMBtu. SOURCES: Energy Information Administration; Wall Street Journal.


Current oil prices not a record low Real prices of crude oil (January 2016 dollars)

SOURCES: Bureau of Labor Statistics; Energy Information Administration; FRB Dallas calculations.

0

20

40

60

80

100

120

140

160

1977 1984 1991 1998 2005 2012

Refiners' acquisition cost of crude

Dollars per barrel

Federal Reserve Bank of Dallas SOURCE: Energy Information Administration.

Supply/demand mismatch

-1

0

1

2

3

4

75

80

85

90

95

100

2012 2013 2014 2015 2016 2017

Implied change in inventories

Petroleum consumption

Petroleum production

Million barrels per day Million barrels per day

Forecasts


IMPACT ON U.S. ECONOMY


Shale boosts U.S. oil production

SOURCE: Energy Information Administration.

0

2

4

6

8

10

12

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Million barrels per day

2015 9.43 mb/d


U.S. shale oil production


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jan2010

Jan2016

Jan2010

Jan2016

Jan2010

Jan2016

North Dakota

Texas

1,098

3,365

1,108

236

786

1,591

Utah Colorado Wyoming New Mexico Oklahoma

Montana Kansas

Thousand barrels per day


Rig count plunges, oil production drops

SOURCES: Baker Hughes; Energy Information Administration.

300

500

700

900

1,100

1,300

1,500

1,700

6.9

7.4

7.9

8.4

8.9

9.4

9.9

Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15

Million barrels per day Rig count

Crude oil production

U.S. oil rig count

Latest estimate 9.02 mb/d (Mar 25)


Drilling investment falls with rig count Private fixed investment in mining/exploration

SOURCES: Baker Hughes; Bureau of Economic Analysis.

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

0

20

40

60

80

100

120

140

160

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Bln chained 2009 $

Rig count

Investment in mining/exploration

U.S. rig count

OPEC decision


1.9 1.6

0.1

0.6

-0.3 -0.1

2.3

-2

-1

0

1

2

3

4

Final demand Personalconsumption

Residentialinvestment

Business fixedinvestment

Government Net exports

2013:Q1 - 2014:Q2

2014:Q3 - 2015:Q4

Contribution to real growth, percentage points, SAAR

Low oil prices boosted growth in final demand

Components of final demand

NOTE: Components do not sum exactly to final demand due to rounding. SOURCE: Bureau of Economic Analysis.


1.9 1.6

0.1

0.6

-0.3 -0.1

2.3 2.1

0.3

-2

-1

0

1

2

3

4





2013:Q1 - 2014:Q2

2014:Q3 - 2015:Q4


0.6

Households benefit from low energy prices and a strong dollar




1.9 1.6

0.1

0.6

-0.3 -0.1

2.3 2.1

0.3 0.3

-2

-1

0

1

2

3

4





2013:Q1 - 2014:Q2

2014:Q3 - 2015:Q4


Mining & manufacturing firms have scaled back cap-ex plans, and investment growth has slowed




IMPACT ON STATE ECONOMIES


Low oil prices benefit most states (Effect of a 50% 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. 2013.

-2.0

-4.3

-2.3 -0.7

-1.2 -1.6

-1.7

-0.7


Energy states did well in 2014

SOURCE: Bureau of Labor Statistics.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

NV

ND CO TX FL GA OR UT

WA CA SC DE MA TN ID NC

U.S

.AR AZ RI LA O

K MI

NY

OH KY WY

WI

NM IN IL

MO

MD AL PA MN SD KS CT NJ

NH IA NE

MS

VA ME

MT HI VT AK WV

Texas

U.S.

Percent Change (Dec/Dec)


Energy states lose jobs in 2015

SOURCE: Bureau of Labor Statistics.

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

ID UT FL OR AZ CA TN CO GA SC WA VA DE NV AR HI NJ

NC

U.S

.KY M

IIN MD

NH NE

MN TX OH

MS

NY

MT IA MA RI SD WI

AL VT ILM

O PA CT ME

NM KS AK OK LA WV

WY

ND

Texas U.S.

Percent Change (Dec/Dec)


Texas rig count and oil production continue to decline

1.0

1.5

2.0

2.5

3.0

3.5

4.0

100

200

300

400

500

600

700

800

900

1,000

2013 2014 2015

Rig count Million barrels per day

Texas rig count

Texas oil production

SOURCES: Baker Hughes; Energy Information Administration.


Regional breakeven prices vary (20% rate of return)

$39$42

$36

$40$43

$46 $47

$35

$40

$47

$58

$69

$83

$30 $30

$37 $39

$50 $51 $51$54

$66

$31

$41

$51$53 $55

$61$64 $64 $64

$69

$78

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Spra

berr

y - M

idla

nd (T

X)

Spra

berr

y - M

artin

(TX)

Eagl

e Fo

rd -

DeW

itt (T

X)

Wol

fcam

p - R

eeve

s (T

X)

Bon

e Sp

ring

- War

d (T

X)

Spra

berr

y - G

lass

cock

(TX)

Spra

berr

y - H

owar

d (T

X)

Wol

fbon

e - R

eeve

s (T

X)

Wol

fcam

p - L

ovin

g (T

X)

Bon

e Sp

ring

- Lov

ing

(TX)

Eagl

e Fo

rd -

Kar

nes

(TX)

Wol

fbon

e - P

lay

Ave

rage

Bon

e Sp

ring

- Pla

y A

vera

ge

Bon

e Sp

ring

- Edd

y (N

M)

Wol

fcam

p - W

ard

(TX)

Bon

e Sp

ring

- Lea

(NM

)

Spra

berr

y - P

lay

Ave

rage

Eagl

e Fo

rd -

Gon

zale

s (T

X)

Spra

berr

y - A

ndre

ws

(TX)

Spra

berr

y - U

pton

(TX)

Eagl

e Fo

rd -

Play

Ave

rage

Spra

berr

y - R

eaga

n (T

X)

Eagl

e Fo

rd -

Live

Oak

(TX)

Wol

fcam

p - P

lay

Ave

rage

Eagl

e Fo

rd -

Zava

la (T

X)

Eagl

e Fo

rd -

Ata

scos

a (T

X)

Eagl

e Fo

rd -

LaSa

lle (T

X)

Eagl

e Fo

rd -

McM

ulle

n (T

X)

Spra

berr

y - I

rion

(TX)

Eagl

e Fo

rd -

Lava

ca (T

X)

Wol

fcam

p - R

eaga

n (T

X)

Eagl

e Fo

rd -

Dim

mit

(TX)

Wol

fcam

p - I

rion

(TX)

Eagle FordSpraberryWolfcampBone SpringWolfbone

Play

Play/County

Sum of WTI Break-Even

SOURCE: Bloomberg.


Rig counts still falling

NOTE: Last data point is April 1. SOURCE: Baker Hughes.

0

100

200

300

400

500

600

700

800

900

1,000

0

40

80

120

160

200

240

2012 2013 2014 2015

Oklahoma

Texas

Louisiana

North Dakota

Rig count, weekly Rig count, weekly

Federal Reserve Bank of Dallas SOURCE: Bureau of Labor Statistics.

Initial jobless claims still high

0

20

40

60

80

100

120

140

160

180

2013 2014 2015

Index, Jan. 5 '13 = 100, 4 WMA North

Dakota

Oklahoma

Texas

Louisiana U.S.


Some states rely heavily on oil and gas severance taxes

(Share of 2014 state tax revenues)

SOURCE: U.S. Census Bureau, 2014 Annual Survey of State Government Tax Collections.

72.4

53.8

39.0

18.5 10.9 8.9 7.5

2.1 0.0 0

10

20

30

40

50

60

70

80

AK ND WY NM TX LA OK CO CA

% Taxes Collected

Percent


WHERE DO WE GO FROM HERE?


Much uncertainty in crude price forecasts


0

20

40

60

80

100

120

Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17

Historical spot price

STEO price forecast

NYMEX futures price

95% NYMEX futures confidence interval

Dollars per barrel


Outlook

• “Lower for longer” outlook for oil prices • Oil demand growth is expected to rise over time • Oil price risks :

– Downside risks: China, Iran, high inventories – Upside risks: Geopolitical turmoil, low investment, “Production freeze”

• Energy importers such as the U.S. should continue to benefit from lower oil prices.

• Rough patch for energy-producing countries and states. • Reform makes Mexican energy sector more open and nimble • Increased opportunities for energy partnership


The Oil Market: From Boom to Gloom

Mine Yücel Senior Vice President and

Director of Research Federal Reserve Bank of Dallas

Federal Reserve Bank of Dallas SOURCES: Baker Hughes; Energy Information Administration.

0

200

400

600

800

1,000

1,200

50

55

60

65

70

75

80

85

90

2010 2011 2012 2013 2014 2015 2016

Billion cubic feet per day Rig count

Marketed natural gas production

Gas rig count

Gas production still robust


1.9 1.6

0.1 0.6

-0.3 -0.1

2.3 2.1

0.3 0.3 0.2

-0.5

-2

-1

0

1

2

3

4





2013:Q1 - 2014:Q2

2014:Q3 - 2015:Q4


Households benefit from low energy prices



the oil market: from boom to gloom - dallasfed.org/media/documents/... · federal reserve bank of...

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