Kunal Patel, Dallas Federal Reserve, recaps their recent study which explains that activity in the energy sector deteriorated further in second quarter 2020, according to oil and gas executives responding to the Federal Reserve Bank of Dallas 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. Exploration and production (E&P) and oilfield services firms both saw continued declines in business activity.
Production indexes suggest oil and gas production sank relative to
the previous quarter. The oil production index declined sharply, falling
36 points to -62.6, according to E&P executives. 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 impact of the coronavirus pandemic on the oil and gas industry
remains severe and widespread,” said Michael Plante, Dallas Fed senior
research economist. “Survey respondents reported sharp contractions in
most indicators, including business activity, oil and gas production and
employment.”
In a series of special questions, firms were asked if they shut in or curtailed production in the second quarter.
“A large majority of E&P firms—82 percent—shut in or curtailed
some production during the second quarter, primarily due to low oil and
natural gas prices,” Plante said. “Many of those respondents were still
holding back production at the time of the survey. Most report that
their production will be back online by September and potentially
sooner.”
The survey also asked industry executives when they expect global oil consumption to return to pre-COVID-19 levels.
“Few respondents expect global oil consumption to return to
pre-COVID-19 levels in the immediate future, with only 5 percent of
respondents believing it will be back to normal by fourth quarter 2020,”
Plante said. “Almost 60 percent believe consumption will have returned
to normal by fourth quarter 2021.”
Other survey highlights include:
E&P and oilfield services firms continued to cut capital spending. The
index for capital expenditures for E&P firms declined from -49 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 to -73.5.
Conditions deteriorated further for 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 to -68.6. While firms found relief as input costs
collapsed—that index fell from -11.3 to -50—the index of prices received
for services also slid further into negative territory, from -37.7 to
-64.7.
Employment continued to contract. The aggregate
employment index posted a fifth consecutive negative reading, declining
from -24 to -46.1, which suggests an acceleration in job cuts.
Additionally,
