Market Reports Point to Stable U.S. Economy and Energy Sector

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Both U.S. crude oil production and the overall economy should remain resilient against various headwinds, data from both the Organization of Petroleum Exporting Countries (OPEC) and the U.S. Energy Information Administration (EIA) showed.

Crude oil prices during the week of March 13 were in a freefall after the collapse of Silicon Valley Bank and New York's Signature Bank. On Wednesday, West Texas Intermediate, the U.S. benchmark for the price of oil, moved well below $70 per barrel for the first time since August 2021.

Equities fared no better as shares in public banks and the broader tech sector plummeted on the news of bank failures. The CBOE Volatility Index was flirting with 30, a good 10 points higher than early-year trends.

The Federal Reserve meets next week to consider its next steps on combating consumer-level inflation, which continues to run at about three times as high as the 2% target rate. The latest Beige Book, a summary of economic activity across the various Fed districts, showed the economy was holding up relatively well on the back of easing supply-chain disruptions and consumer spending.

"Several districts indicated that high inflation and higher interest rates continued to reduce consumers' discretionary income and purchasing power, and some concern was expressed about rising credit card debt," the Beige Book read.

Against lingering inflationary fears, U.S. President Joe Biden said policymakers were tackling the issue from a position of strength. And while we'd largely expect that rhetoric from the head of state, recent indices suggest both the U.S. energy sector and its economy in general will avoid major pitfalls.

Economists at OPEC in their monthly market report for March left forecasts for U.S. economic growth unchanged at 1.2% for this year, which marks a slowdown from the 2.1% growth rate last year.

"Upside potential to the current growth forecast may come from a variety of sources," economists wrote. "Among possible supportive factors would be the U.S. Fed successfully managing a soft landing, which is the most likely outcome in the U.S. given the expected inflation slowdown towards 2H23 and the sufficient underlying demand dynamic."

The EIA, meanwhile, revised its growth forecast higher by 0.3% from its previous report to 0.9%, though that's sharply lower than the 2.1% growth rate last year. The U.S. economy expands by 2% next year.

The main headwind for growth would come from a decline in manufacturing activity.

In terms of production, OPEC data show U.S. crude oil declined marginally -- by about 60,000 barrels per day (BBL/d) on average -- from 2020 levels to 11.25 million BBL/d. Production last year grew by 63,000 BBL/d to 11.88 million BBL/d, and economists expect another expansion of 72,000 BBL/d this year to 12.6 million BBL/d, a record should that forecast hold.

Most of the gains in U.S. crude oil production come from inland shale deposits. OPEC is expecting a net shale increase of 9.2% from year-ago levels to average 8.49 million BBL/d. EIA estimates are relatively the same as OPEC's, with an 11.8 million BBL/d average for 2022 and 12.4 million BBL/d for this year. Unlike OPEC, EIA forecasts to 2024 and suggests an expansion of 1.5% next year to 12.6 million BBL/d.

While the pace of growth year-on-year is declining, U.S. crude oil production should remain well above levels from the so-called shale era, when production rates were accelerating at a 10% clip.

Gains in production, even if the gains are slow, will continue to support state-level economies well into the future. North Dakota, home to the Bakken shale formation, has a gross production tax rate of 5% of the value on oil. Texas, which hosts part of the mighty Permian, has a 4.6% tax on the market value for crude oil.

West Texas Intermediate, meanwhile, should stay at around $70 per barrel on average through 2024.

Crude oil is not the U.S. economy, though its trade levels serve as a barometer. Higher production trends in general avoid many of the supply-side concerns that plagued the global economy last year given the war-related sanctions on Russia, which can produce as much as 10 million BBL/d in its own right.

Recent commentary on U.S. shale is decidedly downbeat given the sluggish growth forecast, but like the rest of the economy, it's still operating from a position of strength.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).