Skip to comments.Turmoil in the Oil Patch Is Hitting U.S. GDP Growth
Posted on 01/29/2016 4:08:11 AM PST by thackney
The tumble in oil prices is set to take another bite out of overall U.S. economic output.
The overall energy sector accounts for just about 4% of inflation-adjusted gross domestic product when adding up contributions from four areas: utilities; oil and gas extraction; petroleum and coal products; and pipeline transportation, and it represents just 1.5% of employment, according to estimates by Deutsche Bank chief U.S. economist Joseph LaVorgna. Given that small slice, many analysts and traders have assumed sharply lower energy-related capital spending isn't a big threat to the broader economy.
But the turmoil could weigh on GDP more than anticipated. Capital spending per employee is much higher in the oil sector than elsewhere, said Ian Shepherdson of Pantheon Macroeconomics, and oil firms can't save themselves simply by cutting staff. (Their biggest expense is equipment.) Throngs of energy companies from giants Exxon Mobil and Chevron to smaller players like Anadarko Petroleum further hacked away at capital-expenditure budgets in the final months of last year. That's as many of them cut jobs and whack dividends.
Upstream spending-on things like drills and property, for example-typically accounts for the bulk of energy companies' investment spending, said Jeff Barron, an economist at the U.S.Energy Information Administration. If the drop is big enough, even a small sector of the economy can have meaningful effect on quarterly GDP numbers.
Take the auto industry, which made up an even smaller piece of the economy when it knocked 1.75 percentage points of GDP growth at the end of 2008, according to Mr. LaVorgna.
In the third quarter, total energy capex was $92.7 billion, nearly halved from a year earlier, according to Goldman Sachs analyst Daan Struyven. That was the lowest capital expenditure per barrel of oil produced in at least five years.
(Excerpt) Read more at blogs.wsj.com ...
It’s called capitalism. You pays your money and you takes your chances. Sometimes you win, sometimes you lose.
Exactly. And its also called the Oil Industry, which has followed this cycle over and over. There was a boom and a lot of people make a fortune. Then there is a painful bust and a lot of start ups go bankrupt. But the good ones survive and are poised to make an even larger fortune when the market comes back again. If the government steps in with a subsidy, it will prevent the pain that ultimately rationalizes the industry and makes it stronger.
The bottom line is that America’s oil industry is one of the last big business that produces wealth (real wealth as defined by Adam Smith) and as such it has several orders of magnitude, of greater influence upon the American’ economy then its overall employment numbers would indicate (for better or for worse).
Adam Smith had this all explained and worked out in his masterpiece “The Wealth of Nations”, published (strangely) in 1776.
“Itâs called capitalism. You pays your money and you takes your chances. Sometimes you win, sometimes you lose.”
Really? Do you think your statement applies to the ethanol, solar and wind lobby?
How about this? If no mandates or subsidies were given to these by the feds, do you think the country would be better off or worse off?
Seems the oil industry is competing with energy production against a deck stacked against them, aren’t they? Do you call that capitalism?
The drop in gasoline prices and air fares are spurring more consumer spending on durable goods which will help Asian economies. The Fee Traitors dream.
A whole bunch of people were warning about this (just like there were before the housing and dot com crashes).
As usual, they were not listened to.
It is not really producing wealth if the derivatives per barrel of oil exceeds many times the value of the barrel of oil ... when it was at its high price.
More vapor ‘wealth’ was created than actual wealth form profits.
I agree the “alternative energy” lobby is NOT part of capitalism, but is a factor that must be considered when investing, and makes for a less than level playing field for the petro industry. Still, the product is a commodity that is manipulated (not a new development) by government and industry alike, i.e. OPEC’s 1973 scam and our own govt’s corrupt injection of alternative energy mandates and subsidies to same. Then along comes fracking tech rapidly making much more fossil fuel available and cheaper than OPEC has fixed prices, then OPEC lowering their prices to undermine fracking and then it backfiring on them to where they have to continue to lower prices in attempts to remain solvent to no avail.
If you are investing your capital in petro industry without considering this well publicized information, I’m afraid you’re not a very good capitalist and yes it’s unfair, but you will lose capital. We sadly cannot enjoy pure free market capitalism with the current US government not to mention what other country’s govts can pull off.
And managing our supplies of energy are a crucial part of National Security.
How much of our blood and treasure has been lost to ensure the free-flow of oil from the Middle East, that, and having to cozy up to a bunch of shady characters to do so?
Precisely why it is failing, it is no longer real wealth, and because it is(was) one of the few sectors of the economy that was (up until recently) active we are seeing a strong down turn in the percentage of middle class (long term) and GDP (short term). Look for thing to get worse, for all American’s until, policies change to promote the creation of real wealth.
I agree with that latest assessment, which is in contrast to your earlier post.
The govt is picking winners and losers, which is NOT capitalism.
Since the govt is taking money from you and me and investing it ‘for the common good’, seems closer to socialism, isn’t it?
People have made more money off of paper-oil than real oil. The problem is that paper oil is now drying-up due to it being a Ponzi scheme.
Bottom line, our recession will continue - bad news for the Obama/Hillary ticket.
Well no longer should we sweat ME oil and let them give it away if they have to, we can buy it as fast as they can pump it at super cheap while ours sits in the ground. It’s not going anywhere.
The entire petro industry is on notice that we are not dependent on them. If we completely stopped imports and let our own oil field go full blast we would have those workers back at work but the petro industry would continue to raise their price til we squealed about importing cheap oil again.
Capitalism does run on greed.
What we have is capitalism with interference manipulated in by a leftist (socialist) and krony/capitalist government. A capitalist will pay attention to the manipulation and invest accordingly.
Government is corrupt, and in fact our own Congress has made law to protect members trading with inside information. The same government that is picking winners and losers.
We can still risk capital, but one of the risks, unfair as it is, is government intervention.
We have a capitalist economy corrupted by krony/capitalism and socialists bent on destroying it.
I agree. Among other things, I believe no one in Congress or the Presidency should be able to enrich themselves due to their time in federal service. To have a Clinton who had a modest accumulation of wealth while in office, and now is worth many millions, is wrong and evil.
How to control this may be difficult, but necessary as long as unpatriotic people get into higher positions in congress and executive.
Don’t get me started.
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