While the Kansas City Federal Reserve Bank survey finds a slight increase in manufacturing in the district that includes Oklahoma, another survey finds oil and gas producers don’t expect any quick turnaround for the industry.
The nation’s oil producers think it will take up to two years for oil output to recover in the wake of the coronavirus pandemic, according to a new survey by the Federal Reserve Bank of Dallas.
The survey of 168 energy firms shows that the oil industry remains in a deep slump, even as crude prices have begun to rebound in the last three months. Eighty-two percent of the companies that responded to the survey said they curtailed their production in the second quarter of the year, and 71% still have some wells shut in.
Of the oil producers and service companies that responded, only 3% said drilling activity will recover to pre-pandemic levels by the end of the year, while 39% said it will take to 2022 or later and 16% — roughly 1 in 6 energy firms — said it will never recover. The Dallas Fed carried out the survey from June 10-18.
The coronavirus forced people to stay home and take other precautions, which caused oil consumption to drop by about 30% worldwide. Prices for U.S. benchmark West Texas Intermediate crude, which were above $60 a barrel at the beginning of the year, plunged below $20 a barrel in April.
“Times like these are purely about survival and many of our competitors and customers will not survive without a material change in the energy space, which I don’t expect for several quarters,” one of the respondents wrote.
The results come as other observers including the data firm Rystad Energy predict that oil demand will begin to decline permanently by the end of the decade. Supermajor oil companies like BP PLC and Royal Dutch Shell PLC anticipate the same thing and are planning to move to more sustainable business.
The consulting firm Deloitte said nearly a third of oil and gas firms are technically insolvent at current prices and predicted a “great compression” as firms are bought and sold or go bankrupt.
The Dallas Fed covers the states at the heart of the oil patch — Texas, New Mexico and Louisiana.
The companies that responded to the central bank’s survey predicted the price of oil would hit about $42 a barrel by the end of the year. A previous Fed survey found that most producers can’t afford to drill new wells at prices below $46 a barrel.
The pessimism came even though energy producers were generally able to get federal aid. More than half of the firms surveyed applied for loans or other assistance under the Small Business Administration’s Paycheck Protection Program and other plans; 89% of those who applied were successful.
“This has been the fastest decline in my oil and gas career, and I expect the turnaround to be painfully slow,” one respondent wrote.
Source: E and E News