The Federal Reserve bank of Dallas recently released its Q1 energy survey. The Fed heard from nearly 150 energy firms about the state of the industry, and what to expect in the coming year.
Matt Smith, energy analyst for Kpler, joined Texas Standard to share some of the highlights. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: Well, the latest Dallas Fed energy survey offers a look at the health of the Texas oil and gas industry. What are some of the key takeaways?
Matt Smith: Well, the overarching theme, I guess, is that the outlook is improving, even though oil and gas activity is really rather little unchanged.
As with everything else in the world, costs have gone up. So firms need $64 a barrel to be profitable now on average. That’s up a couple of dollars when this question was asked last year. And although it varies from shell play to shell play, the range is about $59 to $70 there.
In terms of elsewhere, you know, employment in the industry, the vast majority of respondents expected their workforce to stay the same or increase slightly. So that’s good news for Texas employment.
And then finally, there was a question about the recent pause in the approval of LNG export facilities and how that would impact supply and demand over the long term. And respondents lean towards expecting production to be slightly lower over the long term. While on the demand side, some expected no impact, while others expected hit to demand, which is a little surprising.
But overall, a modestly optimistic report.
Well, you touched on it a little bit, but for the first time, this report also examines longer term price forecasts. What can we glean from that information?
Right. And let’s just say off the bat, it is impossible to predict the future, right? So this is a really tough thing.
But in the near-term, even in the near-term, estimates were wildly ranging from $70 a barrel to $120 a barrel by the end of this year. But the expectation, averaged out about $80. To put that in context, were about $86 right now. We averaged around $82 over that first quarter. Getting into that long term expectation, though, respondents expect $83 two years from now and $90 from five years from now.
And so there is kind of that hope springs eternal in kind of high prices going forward here. But given the backdrop that we’re seeing even just this year, you know, they’re somewhat encouraged to expect prices to stay high over the longer term here.
Well, one thing about these fed surveys is the comment section. And there’s often some insightful and even entertaining comments to be found there. So what are some of the best bits of information in that section?
And so yeah, we’ve talked about this previously on Texas Standard. And some of the comments have been really funny. But this time around they’ve been very solemn.
So there’s been three recurring themes: Uncertainty, geopolitical concerns and political influence.
So here’s a just a couple of responses. As one said, “until the next administration is decided, we’re in a state of flux when it comes to making certain business decisions.” Another said the “volatility and geopolitical risk is more concerning than a year ago. Domestic political uncertainty has increased. No confidence in either party to lead.” And in a final one here is, “I can’t recall a more uncertain time with disturbing world conflicts and the choice we have to make in the U.S. presidential election.”
So, yeah, they kind of sum up the uncertainty and the geopolitical concerns that we see in this presidential year.
Yeah, very somber times. Well, looking ahead to the next quarter, what will you be looking for? And how do you have any predictions for the market in the next few months? I know you said predictions can be foolish, but we’ll go ahead and give it a shot.
Okay. Well, oil prices are going to stay high. So we expect that they’re going to stay above that $80 mark on WTI just because of the geopolitical backdrop and so much uncertainty there.
Taking that back to prices at the pump, on the national average we’re over $3.60 here – that’s about flat year on year. We should see that creeping higher for Texas. It’s just over $3.20, and it should creep higher a little bit as well over Q2.
So that’s me putting my stake in the ground.
