Plunging Crude Prices: Impact on U.S. and State Economies
Mine Y端cel Senior Vice President and Director of Research
Federal Reserve Bank of Dallas February 2, 2015
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Oil and gas prices plunge Nominal price, $, weekly 160 140 Oil Price
120 100 80 60
Natural Gas Price *
$47.08
40
$3.06
20 0 2006
2007
*Natural Gas multiplied by 10.
2008
2009
2010
2011
2012
2013
2014
2015
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Outline • How did we get here? – World oil supply/demand balance • Impact on U.S. economy • Impact on state economies • Where do we go from here?
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World Oil Consumption Growth Million barrels per day 6 World oil consumption growth 5
4
3
2
1
0 Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Source: Energy Information Administration. Federal Reserve Bank of Dallas
World Oil Consumption Growth
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World Consumption and Non-OPEC Production Growth Million barrels per day 6
World oil consumption growth Non-OPEC production growth
5
4
3
2
1
0 Q1 2013
Q2 2013
Q3 2013
Q4 2013
Source: Energy Information Administration.
Q1 2014
Q2 2014
Q3 2014
Q4 2014
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World Oil Consumption and Production Growth
Million barrels per day 6
World oil consumption growth Non-OPEC production growth
5
OPEC production growth
4 3 2 1 0 -1 -2 Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Source: Energy Information Administration. Federal Reserve Bank of Dallas
Demand/Supply Balance and Oil Prices Million barrels per day
Dollars per barrel 20 World oil consumption growth Non-OPEC production growth 15 OPEC production growth Change in WTI price (right axis) 10
6 5 4
5
3
0 -5
2
-10
1
-15
0
-20
-1
-25 -30
-2 Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Source: Energy Information Administration. Federal Reserve Bank of Dallas
Iraq and Libya ramped up output after June 2014 (Cumulative output )
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Energy prices fall more than other commodities
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In contrast to falling prices in 2008
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IMPACT ON U.S. ECONOMY
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U.S. oil and gas production
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Crude Oil Production From Shale
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U.S. rig counts decline
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Oil production holding up
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New rigs and wells very productive (New well oil production per rig)
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How low can prices go ? • Breakeven costs for different areas: • Bakken – $28 - $85 per barrel
• Eagle Ford – $46 - $80 per barrel
• Permian Basin – $52 - $75 per barrel
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Impact on U.S. Economy • The U.S. benefits from lower oil prices • Boosts consumer disposable income – One penny decline in gasoline prices could increase disposable income by $1.4 billion per year
• Reduces the cost of energy to firms • Reduces profitability of producing oil • A 50% fall in oil prices may lead to a 0.3% to 1.0% increase in GDP (depending on the model) • Headline inflation falls Federal Reserve Bank of Dallas
IMPACT ON STATE ECONOMIES
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Energy Related Employment
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Low oil prices benefit most states (Effect of a 50% decline in oil prices on employment)
-2.0 -4.3 -0.7
-0.7
-2.3 -1.2
-1.6
-1.7
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Some states rely heavily on oil and gas severance taxes (Share of state tax revenues)
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WHERE DO WE GO FROM HERE?
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World Consumption Growth Forecast
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Crude Price Forecast
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Summary • Market will adjust – Lower prices will lead to a contraction of supply and increase in demand
• • • •
Global GDP growth is expected to rise over time Oil prices expected to rise U.S. supply response will be swifter than in the past Uncertainties abound
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