Business activity increased in the second quarter, albeit at a slightly slower pace, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—remained robust at 37.3, slightly below the 41.8 reading last quarter. Despite some deceleration, most other indexes also reflected expansion on a quarterly basis. Responses among oilfield services firms were particularly strong.
Oil and gas production increased for the third quarter in a row, according to executives at exploration and production (E&P) firms. The oil production index was 10.2, down from 13.1 last quarter, and the natural gas production index declined seven points to 10.6. This suggests oil and gas production is rising at a slower pace than last quarter.
The business activity index for oilfield services firms edged up to 49.3—its highest reading since the survey began in first quarter 2016. Utilization of oilfield services firms’ equipment increased, with the corresponding index at 45.4, up from 26.0 last quarter.
Measures of selling prices and input costs suggested some pressure on margins for oilfield services firms. The index of prices received for oilfield services fell to 9.1 from 18.3, while the index of input costs surged to 37.0 from 23.6.
Labor market indexes point to rising employment, employee hours, and wages and benefits. Growth in employment was driven primarily by oilfield services firms. The employment index was 40.3 for services firms versus 5.7 for E&P firms. The employee hours indexes showed a similar gap: 43.3 for services firms versus 8.7 for E&P firms. The aggregate wages and benefits index moved up again, to 22.8 from 17.1.
The company outlook index posted a fifth consecutive positive reading but fell 25 points to 20.3. Uncertainty regarding the outlook rose again. Over 46 percent of firms reported increased uncertainty about the future, up from 33.8 percent last quarter.
On average, respondents expect West Texas Intermediate (WTI) oil prices to climb to $48.79 per barrel by year-end, with responses ranging from $30 to $65 per barrel. Respondents expect Henry Hub natural gas prices will end the year at $3.01 per million British thermal units (MMBtu). For reference, WTI spot prices averaged $43.80 per barrel and Henry Hub spot prices averaged $2.89 per MMBtu during the survey collection period.