US oil and gas outlook still improving: Fed survey

OREANDA-NEWS. September 08, 2016. Key US onshore producers are gaining confidence about improving conditions through 2017, according to the Federal Reserve's latest business activity survey.

But cost-cutting and layoffs continue across the sector, and financial conditions remain distressed for many producers, according to the Fed's Beige Book survey released today.

Expectations for higher oil prices drove the increase in drilling activity in the Kansas City district, which covers a large part of the midcontinent and some Rocky Mountains states. The survey covers the period since mid-July. The Nymex light, sweet crude front-month contract yesterday settled at \\$44.83/bl, down slightly since mid-July. US oil rig count in the same period increased by 50 to 407 on 2 September, while the number of rigs drilling for natural gas was down by one unit to 88, according to Baker Hughes.

Respondents in the midcontinent expressed greater confidence than during the previous survey that global oil market would rebalance by the end of 2017. Demand globally should overtake supply by the third quarter of 2017, the US Energy Information Administration projected in today's Short-Term Energy Outlook. It expects West Texas Intermediate price to average \\$50.58/bl next year, up from a projected \\$41.92/bl this year.

Producers in the midcontinent and the Atlanta district, which includes most of Louisiana, reported continued sales of non-strategic assets to help lower debt levels. Demand for oilfield services remained depressed in the Dallas district, which covers Texas and parts of New Mexico and northwest Louisiana, but respondents expected conditions to improve in that sector next year.

Natural gas producers both in the Gulf coast and the mid-Atlantic shale regions also were more optimistic about the prospects for their sector as demand for natural gas picked up in the power generation. But wellhead prices remain below levels that would spur natural gas producers to restart drilling programs, respondents said in the Cleveland, Ohio, district, which includes the Utica shale and parts of the Marcellus. Investment in midstream projects in the Marcellus and Utica shales is slowing down as the pace of production growth has decreased and the capacity of existing gas processing plants matches production, according to the survey.