Source: Platts RADAR, November 29, 2018

Oil Prices Hovering Around Near Break-Even Levels

From time to time we fall back on the data collection efforts of the Federal
Reserve Bank of Dallas for insights on the oil and gas sector. Recall that near
the end of October we highlighted that E&P firms participating in the Dallas
Fed’s 3Q18 survey were expressing uncertainty about their outlook for the
industry.

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Specifically, we wrote that: “Between the dates of September
12th to September 20th the average spot price of West Texas Intermediate
Crude was $69.79 per barrel. The significance of this timing is that
it coincides with when the Federal Reserve Bank of Dallas collected
responses from 166 industry executives for its third quarter Dallas
Fed Energy Survey. The consensus of these respondents was that oil prices
would exit the year nearly $1 per barrel less than actual prices were averaging at the time. Further, these responses exemplified a growing negative sentiment on oil prices relative to the same survey question at the end of the second quarter

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Special questions within the survey focused specifically on how oil & gas 
executives viewed recent challenges in the Permian (i.e., pipeline takeaway 
constraints and differentials in the region), changes in steel tariffs, and global
fundamental expectations for crude next year. While these responses
provide clarity in how the oil & gas industry views recent challenges;
what we found most interesting was some foreshadowing in the survey
of the recent selloff in the broader markets both domestically and
internationally.”

Now with WTI crude oil prices hovering at around $50 per barrel
we revisit the Dallas Fed’s Survey from earlier in the year (March
2018), when respondents provided their break-even price for drilling new
wells. If prices persist around $50 per barrel over the remainder of the year
then based on these surveys we could expect drilling for crude to slow in
2019 domestically as many of the locations for future drilling would be
uneconomical at today’s commodity prices.

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This is an excerpt from Platts RADAR, November 29, 2018 issue.

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