Fed Energy Survey Notes Growing Cost Pressures



Growth in the energy sector continued in the third quarter, according to the Quarterly Energy Survey conducted by the Federal Reserve Bank of Dallas.

“The most recent investigation revealed strong business activity,” Kunal Patel, business economist at the bank, told Reporter-Telegram in a telephone interview.

While still strong, the core business activity index fell to 44.3 from 53 in the second quarter.

Patel noted that survey respondents also reported increasing cost pressures, both in terms of input costs and labor costs. The input cost index for service companies set a second consecutive quarterly record, rising from 56 to 60.8 in the second quarter. These cost pressures are reflected in the upstream industry, with exploration and production officials reporting more research and development costs, rental operating expenses, and more labor costs. high, he said.

Among service companies, the supplier delivery time index fell from 14 to 26.7 in the second quarter, the highest figure since the survey began. Delivery delays amounted to 26.7, also a record. For E&P companies, the index fell from 4 to 10.5 in the previous quarter.

Respondents also reported problems finding workers, with the lack of qualified candidates being the main reason, followed by workers asking for more than offered pay. One respondent said wages increased by 20% as the company was unable to raise prices enough to cover costs.

Equipment utilization in the service sector increased to 47.8 from 42 in the second quarter and the operating margin index remained positive at 21.8. The prices charged for the services went from 30 to 42.2.

The employment index posted a third consecutive positive reading, going from 9.9 to 14, mainly thanks to the service sector. The service sector employment index was 25.5 compared to 8.4 for E&P companies.

Expectations for oil prices at the end of the year remained on average at $ 70 a barrel, down from $ 61 in the first quarter, although the upper bound of expectations rose to $ 90 in the current survey.

The natural gas price forecast, however, has gone from an average of $ 2.80 per MMcf in the first quarter to $ 3.10 in the second to $ 4.74 this quarter. “There are definitely higher expectations for natural gas,” Patel observed.

Oil production continued to grow, but the pace of growth slowed significantly to 10.7 in the third quarter from 35 in the second.

While still strong, the outlook for businesses worsened from the second to the third quarter, as uncertainty shifted from negative territory to slightly positive territory.

“Without a doubt, the situation is better than a year ago. But it’s hard to say if it’s better than in 2019. “

Key takeaways from this quarter’s Special Questions results:

  • Executives expect sales of electric vehicles to pick up by the end of this decade; the most selected answer was that 10-19% of all new vehicle sales in the United States will be plug-in electrics by 2030.
  • The use of carbon offsets and / or credits is quite limited among respondents. Only 3% say they buy them, while 10% plan to do so in the future.
  • COVID-19-related work disruptions were widespread but generally minor. Fifty-three percent of executives reported minor operational delays or interruptions; another 17% of delays or significant disruptions.


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