Posted on 04/27/2015 7:57:00 AM PDT by SeekAndFind
The oil crash is hammering the Texas economy.
The latest manufacturing index from the Dallas Fed came in at -16, better than last month's -17.4 reading, but below expectations for -12.
Last month's reading was the lowest reading in 2 years.
But this report's real impact is seen in the comments form the state's business leaders, which show that the oil crash is still weighing on activity in Texas. Big time.
According to a comment from an executive in the fabricated metal manufacturing sector, "Our oil and gas customers have come to a complete stop. It looks like everyone in the industry is digging in for a long-term trough."
This same executive continued, "It looks like the graph will not be a 'V' with a short flat bottom, but a graph that looks like bathtub with a large drain at one end that will take some suppliers down."
Monday's report also indicated that the company outlook index fell to its lowest point in nearly two and a half years. Additionally, the production index came in at -4.7, the second straight negative reading.
From the chemical manufacturing sector, one executive said, "2015 started slower than expected. Lower energy prices have adversely impacted our business in the energy sector; other businesses are steady but aren't showing the growth we would have expected. The environment is tepid at best."
The strong US dollar, which has weighed on corporate earnings during the first quarter, is also hitting the Texas economy. One executive from the paper manufacturing sector said the strength of the dollar, "is starting to have an effect on our orders and outlook."
(Excerpt) Read more at businessinsider.com ...
I bet the PV&F industry is taking a massive hit.
It looks about like that here in Tulsa, too. Tulsa may not be the Oil Capital anymore but there's still a strong manufacturing base for the oilfield here and they're taking a beating right now. The biggest worry around here right now is what happens to the 4 Baker-Hughes facilities around here when the Halliburton acquisition closes.
Looks like we better jack gas prices back up to $4.50/gal. To save the economy! /s
Not to mention all the tools that built hotels/motels in every small town south of San Antonio and all the houses being built in Midland/Odessa. Those markets are fixing to disappear.
The big oil boom of recent years has finally produced a big drop in prices, which looks more like a long term readjustment than a quick market swing.
Although the oil boom may have run its course for now, they can continue to profitably produce at these higher levels.
Natural gas in the US has already run its boom, until plentiful supply lowered prices, and started slowing its growth rate.
In both cases, improved technologies have permanently improved productivity, lowering the break-even price points. In both cases, the US has huge supplies which could be produced.
Natural gas is gearing up for another (although less explosive) growth spurt next year, as huge export facilities start coming on line. It takes a few years to get these built, but 2016-18 will see a sharp rise in export capability, as these projects are already, approved, funded and well underway.
US natural gas prices are well below world prices - less than half what many countries pay. We can keep pumping more gas into the world market, until prices worldwide adjust down to our levels (domestic prices will rise a bit as well for a while).
Although the boomtown rush of huge wages and huge premium prices for oilfield service suppliers may come back down to more competitive rates, production will continue at higher rates in the long term, pumping money into our economy and taxes into the public treasury.
It is a long term major good news story for the USA and the world.
Oil has always been cyclical. Sane federal policy would help but it’s essentially the free market at work.
I know some of the engineering/design firms in Houston that serve the upstream and midstream oil industry have had lay-offs up to 50% of the company already.
Not all of them, but several at least.
BHI: US rig count drops 22 units in 20th straight week of losses
http://www.ogj.com/articles/2015/04/bhi-us-rig-count-drops-22-units-in-20th-straight-week-of-losses.html
The US drilling rig count fell 22 units to 932 rigs working during the week ended Apr. 24, marking the 20th consecutive week of declines, according to data from Baker Hughes Inc.
The count has now plunged 988 units since the week ended Dec. 5 (OGJ Online, Dec. 5, 2014). The total of 932 is the lowest since July 17, 2009, and 929 fewer units compared with this week a year ago....
Texas again led the losses among major oil- and gas-producing states with a 19-unit decline to 393, down 513 since Nov. 21 and 501 year-over-year. The state’s losses reflected a 12-unit drop in the Permian to 246, down 322 since Dec. 5, and an 8-unit drop in the Eagle Ford to 115, down 103 since Oct. 31.
North Dakota lost 5 units for the second straight week to 78, reflecting a 5-unit drop, also for the second straight week, in the Williston to 79....
I’ve noticed the Texas downturn in rental car prices. A year ago, Dallas and Houston had among the highest prices in the country. Now you can rent a car for about a third as much.
“midstream oil industry have had lay-offs up to 50% of the company already.”
I didn’t mean to gloss over that it is going to be painful to adjust to these lower prices - it will be.
When a bubble bursts, a lot of bets are going to go bad - some significant number of companies are going to fold completely, and the others will have to layoff and cut corners. As we discussed separately, US Steel recently had big layoffs for folks who make tube steel for the oil industry. Lots of individuals and small businesses will see their property prices drop and local business fall off. So the whole supply chain and community will have to adjust to a hard drop.
The Saudis are trying to bankrupt the competition, so they can raise prices later. They can produce cheaper than about anyone on Earth due to their geology, and their existing infrastructure. They can borrow money cheap, and are sitting on a big cash cushion, so they have a strong ability to survive a long period of low prices.
Even so, they need money to keep their population subdued and to meet their growing security needs. A good bit of their decision not to restrict production, is that they need the money now as well. They learned before that the rest of OPEC rides free on their cutbacks, and they want to choke other competitors like Iran and Russia, as well as Americans.
Iran may have its sanctions lifted soon, and has very large capacity. Everybody in the world is eager to pump, and OPEC has significantly lost its power to restrict supply (largely due to American producers). So prices will increasingly be set by the price at which American producers can survive and meet demand.
That is the encouraging note that I really wanted to add during this hard adjustment - there is a strong underlying business case for the US industry long term. The technological/productivity improvements that Americans have developed have changed the global hydrocarbon market for good. Even if we aren’t experiencing rapid growth, we will continue to produce at a higher level than we have just a few years ago.
A big key will be how resilient companies can be in scaling down costs to ride out low prices, and quickly scaling up production to meet higher prices. So far, the industry is surprising analysts (including Saudis) in being efficient at this.
And natural gas production has a strong case for growth regardless, due to the opening of export.
Large reserves do not equal production capacity. Just look at Venezuela. Iran has been hurting for cash for a while. They have not had money to keep up with production.
Crashing? You coulda fooled me.
I just left Houston and sold my house for above asking price in 24 hours.
“The big oil boom of recent years has finally produced a big drop in prices, which looks more like a long term readjustment than a quick market swing.”
I think those who try to predict what will be happening on forecasts are dreaming.
Take a look at what the predictions were in 1981 on oil price, and what they turned out to be.
http://www.kaldor.no/energy/lecture20090312-oilprice.html
It will be soon enoughenough. Gas will be over $3/gal by Memorial Day if not sooner.
It was just nice to be able to afford some new shirts for work and a few dinners out while gas/diesel was down to realistic levels.
When it’s back at the $4 level we’ll all know it isn’t Market levels, just an artificially inflated price.
A couple years ago I was investigating retooling my machine shop to manufacture oil drilling equipment. I’m glad I didn’t. Too cyclical for my taste. Good money for certain but investing in $500,000 in new machines that (now) would be sitting idle would have killed my business.
I’m more concerned about being energy independent, so we don’t have to waste more blood and treasure to keep the Saudis happy.
So how do you relate your comments to a global oil demand that continues to trend larger and larger?
“global consumption grew by 0.9 million bbl/d in 2014”
“global consumption will grow by 1.0 million bbl/d in 2015 and by 1.1 million bbl/d in 2016”
http://www.eia.gov/forecasts/steo/report/global_oil.cfm
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