plunging crude prices: impact on u.s. and state economies · 2018-01-26 · • the u.s. benefits...

Federal Reserve Bank of Dallas

Plunging Crude Prices: Impact on U.S. and State Economies

Mine YücelFederal Reserve Bank of Dallas

March 25, 2015


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

Natural Gas Price * $47.69

$2.75

* Henry Hub Price x10Source: Energy Information Administration; Wall Street Journal.


World Oil Consumption Growth(year-over-year)

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

2013 2014

OECDNon-OECD AsiaFSU and Eastern EuropeOther

Source: Energy Information Administration.

Million barrels per day


World Oil Consumption Growth(Year-over-year)

0

1

2

3

4

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014

World oil consumption growth




World Consumption and Non-OPEC Production Growth

(Year-over-year)

0

1

2

3

4

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014


Non-OPEC production growth




World Oil Consumption and Production Growth(Year-over-year)

-2

-1

0

1

2

3

4

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014


Non-OPEC production growth

OPEC production growth




Iraq and Libya Production Up Since June

Source: International Energy Agency.

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14

Libya

Iraq

Million barrels per day change since June


Demand/Supply Balance and Oil Prices

-30

-25

-20

-15

-10

-5

0

5

10

15

20

-2

-1

0

1

2

3

4

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014

World oil consumption growthNon-OPEC production growthOPEC production growthChange in WTI price (right axis)


Million barrels per day Dollars per barrel


Energy prices fall more than other commodities

40

50

60

70

80

90

100

110

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

All Non-Energy

Industrial Metals

Energy

Sources: S&P; Bloomberg.

GSCI Index, Sept 2, 2014 = 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


U.S. Crude Oil Production From Shale

0

500

1000

1500

2000

2500

3000

3500

4000

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

Source: Energy Information Administration

1,513

Thousand barrels per day

1,227

3,447

Texas

North Dakota

UtahColoradoWyoming

New Mexico

Oklahoma

MontanaKansas

786

236

1,098


Despite rig count declines, oil production holding up

0

500

1000

1500

2000

2500

6.5

7.0

7.5

8.0

8.5

9.0

9.5

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15

Source: Oil and Gas Journal; Baker Hughes.


Oil Production

Rig Count

Rig Count


New rigs and wells very productive(New well oil production per rig)

0

100

200

300

400

500

600

700

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

Bakken

Eagle Ford

Permian


Barrels per day


Impact on U.S. Economy

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

– The decline in gasoline prices adds $710 to household budgets in 2015

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

– Layoffs and Capex declines in energy firms• A 50% fall in oil prices may lead to a 0.3% to 1.0%

increase in GDP (depending on the model)• Headline inflation falls


Regional Effects

• 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 retail, leisure and hospitality, and

health services. • Local governments: greater sales taxes • State governments: increased severance 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

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


Some states rely heavily on oil and gas severance taxes

(Share of state tax revenues)

89.2

46.6

19.1

11.0 9.4 9.45.5

1.4 1.2 0.00

10

20

30

40

50

60

70

80

90

100

AK ND WY LA TX NM OK KS CO CA

Oil and Gas % of Total Taxes Collected

Percent

Sources: States' revenue reports for fiscal year 2013.


Oil and Gas Share of Revenues

0

2

4

6

8

10

12

14

16

18

20

1978 1983 1988 1993 1998 2003 2008 2013

Natural Gas TaxesOil Taxes

Source: Texas Comptroller.

Percent


WHERE DO WE GO FROM HERE?


World Consumption Growth Forecast

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

2013 2014 2015

OECDNon-OECD AsiaFSU and Eastern EuropeOther



Forecast


Crude Price Forecast

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



Dollar and oil weigh on Texas Leading Index

-0.08

0.40

0.36

-0.29

-0.87

-1.11

0.47

-0.87

-1.98

-2.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00

Average Weekly Hours

Help Wanted Index

Texas Stock Index

New Unemployment Claims

Well Permits

Real Oil Price

U.S. Leading Index

Texas Value of the Dollar

Net Change in Texas Leading Index

Texas Leading Index Components, 3 month changeOctober -December


Texas still expected to add jobs

95

100

105

110

115

120

125

130

135

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16

Millions of JobsIndex

(1987=100)

Leading Index

Texas Nonfarm Employmentand TLI Forecast (with 80%

confidence band)

Source: Bureau of Labor Statistics, Federal Reserve Bank of Dallas, author's calculations


Outlook

• Market will adjust– Lower prices will lead to a contraction of supply and

increase in demand

• Global GDP growth is expected to rise over time• Oil prices expected rise• U.S. supply response will be swifter than in the past• Uncertainties abound


Plunging Crude Prices: Impact on U.S. and State Economies

Mine YücelFederal Reserve Bank of Dallas

plunging crude prices: impact on u.s. and state economies · 2018-01-26 · • the u.s. benefits...

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