OREANDA-NEWS. December 30, 2016. US oil company executives are more optimistic about prospects following a recent Opec [agreement], (http://direct.argusmedia.com/newsandanalysis/article/1359337) even though some are skeptical that proposed cuts will materialize.

The agreement has boosted crude prices and confidence among US producers, according to an energy survey the Federal Reserve Bank of Dallas released today. Almost three quarters of exploration and production (E&P) executives said prospects for their companies improved in the fourth quarter, as did 60pc of oil service company executives.

The survey includes answers from 147 oil and natural gas executives in the Dallas district, which covers Texas and parts of New Mexico and northwest Louisiana. The Dallas Fed polled the respondents earlier this month, asking them to comment on their operations during the fourth quarter and the forward-looking outlook.

The Dallas Fed energy business activity index, which is a measure of sentiment among oil and gas companies in the Dallas district, strengthened to 40.1 from 26.7 the previous survey — signifying an expansion in activity. The six-month outlook showed an even more significant improvement, with most companies indicating an intent to increase capital expenditures relative to plans made three months earlier.

Production indexes turned positive for both oil and natural gas, after contracting in the previous two quarters. Measures of labor market and wage conditions also improved, although most companies reported unchanged headcounts.

Oil service companies for the first time this year reported an increase in prices received for services. The survey result shows that E&P companies may have reached a limit in their ability to cut operational costs. Oil service companies also reported an increase in the equipment utilization index, for the second consequential quarter.

Onshore oil and gas producers operated 320 rigs in Texas as of last week, up by 76 units from late September, Baker Hughes data show.

The Permian basin accounted for most of the recent increase in drilling in Texas, as technological and operational improvement cut costs. Some executives surveyed by the Dallas Fed suggested that the uptick in drilling has bid up Permian acreage prices above their value. But the survey also quoted an unnamed executive saying that "some area prices are justified but others are not. This is not atypical for oil and gas investing."

More than 70pc of executives at exploration and production companies expect oil prices to climb higher in December 2017. But only 45pc have the same outlook on natural gas prices, with another 38pc expecting natural gas prices to remain at the same level.

The Nymex light, sweet crude front-month contract settled at \\$54.06/bl yesterday, up by 12pc since late September. Daily natural gas prices at the Henry Hub averaged \\$3.57/mmBtu this month, up by 20pc from the September average, as colder than normal weather at the start of the heating season boosted demand for the fuel.

More than half of oil executives surveyed by the Dallas Fed tied higher oil price forecasts and improved outlooks to the announced Opec and non-Opec production cuts. But paradoxically, 58pc of the survey participants do not believe Opec will succeed in enforcing the agreement.

"Opec's recent agreement is suspect," an unnamed oil services executive said, as quoted in the survey. "I expect that Opec and non-Opec members will cheat on the agreement, so I will be watching worldwide inventory levels closely," the survey quoted a producer as saying.

Almost 45pc of the respondents expected the global oil market to come into balance in the third quarter of 2017. A roughly equal number of respondents, just under 20pc, suggested either the second or fourth quarter of 2017 for the market balance.