The energy sector, particularly oil and gas, saw steady activity in the final quarter of the year, but optimism among industry leaders has dipped due to increasing uncertainty. This sentiment was captured in a recent survey conducted by the Dallas Federal Reserve Bank, which polled executives in the oil and gas industry.
A key concern highlighted in the survey is the fluctuating oil prices, compounded by doubts over OPEC’s capacity to significantly impact these prices. Kunal Patel, an economist at the Bank, noted that this uncertainty particularly affected exploration and production (E&P) firms, with their outlook index plunging from 46.8 to -9.0.
While oil production in the US Lower 48 states has continued to rise, the pace of increase has slowed. Additionally, the industry anticipates a wave of significant mergers and acquisitions. Patel observed that larger E&P firms are likely to prioritize acquiring assets or reducing debt in 2024, while smaller firms aim to boost production.
Another notable trend is the moderation of input cost increases for service firms in 2024, though concerns over rising interest rates persist. These hikes in interest rates are beginning to influence sector activities, with one executive citing oversupply as a key factor exerting downward pressure on oil prices.
Employment within the energy sector has remained stable despite a drop in rig count, reflecting the industry’s increased efficiency. However, geopolitical tensions, particularly the Israel-Hamas conflict, add another layer of uncertainty to the sector’s outlook.
In a survey of 143 oil and gas firms conducted this month, when asked about their expectations for WTI crude oil prices by the end of 2024, the most common forecast (28% of responses) was within the range of $75-79.99 per barrel.
Interestingly, production from new wells has exceeded expectations, attributed more to higher outputs from specific sites rather than an increase in the number of wells. Patel pointed out that total U.S. crude production hit a record high last week at 13.3 million barrels per day, as reported by the Energy Information Administration.
This snapshot of the oil and gas sector in the final quarter reveals a complex picture of cautious stability, with looming challenges and strategic shifts on the horizon as the industry navigates an uncertain global landscape.