Fed Survey Reveals U.S. Energy Sector Frustration

Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Uncertainty about the direction of future oil prices has prompted several firms to delay investment decisions, the Federal Reserve Bank of Dallas found.

The Dallas Fed on Wednesday published its regular quarterly survey on the mood in the regional energy sector, polling executives at oil and gas firms between September 10 and 18.

Nearly 80% of the executives responded by saying they have delayed investment decisions because of uncertainty about the price of oil, and whether those prices support additional drilling.

"Day-to-day changes to energy policy is no way for us to win as a country," one respondent from the upstream sector said. "Investors--rightly--avoid investing in energy of all types now because of the volatility of underlying business results, as well as the 'stroke of pen' risk that the federal government wields as it relates to long-duration energy developments."

U.S. President Donald Trump's trade policies have spooked investors, while many of his actions are facing a test in the courts. Describing a stop-work order issued on national security grounds as "arbitrary and capricious," a federal judge allowed construction to continue on the Revolution Wind project off the U.S. East Coast. The project was more than 80% completed before Trump's order.

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On the market itself, West Texas Intermediate (WTI), the U.S. benchmark for the price of oil, averaged $63.80 per barrel during the Dallas Fed's survey period. That's close to the annual average expected from survey respondents, slightly higher than their break-even point. Nearly 60% added that regulatory changes from pro-oil President Trump have lowered their break-even price by less than $1 per barrel.

"The administration is pushing for $40 per barrel crude oil, and with tariffs on foreign tubular goods, prices are up and drilling is going to disappear," one respondent said.

The federal government expects WTI to average about $48 per barrel by next year, well below the point at which many shale drillers can make a profit. Tariffs on steel, meanwhile, are creating additional headwinds for the industry as the U.S. does not make much of the tubular products necessary for pipelines.

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In general, the Dallas Fed reported that oil and gas activity in the region declined slightly in the third quarter. Most major indices the Dallas Fed uses to gauge the mood in the room were negative.

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