(The Center Square) – Energy markets continued to decline in the Midwest during the summer, but a modest increase is projected.
The Kansas City Federal Reserve’s third quarter energy survey, released on Friday, reviewed oil and natural gas markets in the bank’s district, which covers Colorado, Kansas, Missouri, Nebraska, New Mexico, Oklahoma and Wyoming. Energy firms were contacted between Sept. 15 and 29. The survey reports on several energy indicators, including drilling, capital spending and employment. Companies also give projections for oil and gas prices.
“District drilling and business activity declined further in Q3, but revenues grew after declining for three consecutive quarters and employment continued to increase at a moderate pace,” Chad Wilkerson, senior vice president at the Federal Reserve Bank of Kansas City, said in the report. “Firms’ sentiment for future activity improved in light of increased commodity prices.”
Companies reported oil must be on average approximately $64 per barrel for drilling to be profitable and $90 per barrel to cause substantial increases in drilling. For natural gas drilling to be profitable, it needed to be at $3.45 per million per British Thermal Unit, a standard of measure of energy needed to raise or lower a pint of water by one degree Fahrenheit. A price of $4.36 per million BTU is necessary for drilling activity to increase.
The report said year-over-year oil and natural gas indexes were mixed. While drilling and business activity showed a moderate decline, the report found revenue, profits and supplier delivery time decreased at a slower pace than during the second quarter.
Employment indexes in the sector cooled as wages and benefits measures increased. Companies also expressed negativity when asked about access to credit. The poor outlook for credit was the first since the survey for 2020’s fourth quarter.
Companies were asked about expectations for the amount of oil and natural gas rigs in the U.S. rig count during the next six months when taking current conditions into account. Almost half (48%) of the companies expect the number of rigs to be slightly higher and 45% expect it to be the same. Only 3% expect it to be significantly higher or lower.
When asked how productivity changed at their business during the past year, 45% of respondents reported a slight increase and 31% reported no change. When asked about the coming year, 70% of the companies expect a slight increase in productivity.
