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Oil Price Collapse Reverberates with Job, Capital Expenditure Cuts

What’s New This Quarter West Texas Intermediate crude oil prices have fallen from $60 per barrel during the fourth-quarter survey period to $28 per barrel during the first-quarter survey period. (The price per barrel further declined to $24 per barrel during the week ended March 20.) Special questions this quarter include an annual update to our data on breakeven prices by basin, expected changes in employee head counts for 2020, the impact of the coronavirus (COVID-19) on company outlooks and the ability of firms to remain solvent given lower oil prices.

Activity in the oil and gas sector declined significantly in first quarter 2020, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—plunged from -4.2 in the fourth quarter to -50.9 in the first, the lowest reading in the survey’s four-year history and indicative of significant contraction. Exploration and production (E&P) and oilfield services firms both saw large decreases.

The oil production index plunged 51 points to -26.4, according to E&P executives. It posted its first negative reading since third quarter 2016. The natural gas production index also turned negative, from 15.6 to -21.2. Both indexes suggest that oil and gas production fell relative to the previous quarter.

The index for capital expenditures dropped from 9.1 in the fourth quarter to -49.0 in the first quarter, indicating a reduction in capital spending among E&P firms. The index for the expected level of capital expenditures next year plummeted from 0.9 in the fourth quarter to -61.9 in the first quarter, indicating E&P firms also slashed expectations for capital spending next year.

All indexes pointed to worsening conditions among oilfield services firms. The equipment utilization index fell from -25.8 in the fourth quarter to -47.2 in the first quarter, suggesting an accelerating contraction in equipment utilization. Firms found some relief as input costs fell in the first quarter from 1.7 to -11.3. However, the index of prices received for services slid further into negative territory, from -24.5 to -37.7. The operating margins index also became more negative, from -39.7 to -50.0.

The aggregate employment index posted a fourth consecutive negative reading, declining from -10.0 to -24.0, a signal that jobs contracted further. Additionally, the aggregate employee hours worked index fell from -7.7 to -32.1. The index for aggregate wages and benefits went negative for the first time since third quarter 2016 at -8.2, down from 8.2.

The company outlook index plunged 77 points to -75.0 in the first quarter, indicating an extremely pessimistic outlook. The uncertainty index jumped 38 points to 63.8, pointing to heightened uncertainty regarding firms’ outlooks. Seventy-nine percent of firms reported greater uncertainty.

On average, respondents expect a West Texas Intermediate (WTI) oil price of $40.50 per barrel by year-end 2020, with responses ranging from $20 to $65 per barrel. Survey participants expect Henry Hub natural gas prices to be $2.03 per million British thermal units (MMBtu) by year-end. For reference, WTI spot prices averaged $28.27 per barrel during the survey collection period, and Henry Hub spot prices averaged $1.84 per MMBtu.

Next release: June 24, 2020