Costs and uncertainty cloud oil outlook, Dallas Fed says

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Oil production growth in major U.S. oil-producing states has slowed, and inflation, supply chain issues and economic uncertainty have led leaders to lower expectations, according to the latest Federal Reserve Bank of Dallas survey.

Oil and gas activity fell to 30.3 in the fourth quarter from 46 in the third, according to this month’s survey of executives from 152 energy companies in Texas, New Mexico and Louisiana. The index was 57.7 in the second quarter of this year, the highest reading in the survey’s history.

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Shale oil growth in the United States has also shown signs of slowing. Production in the Permian, the largest U.S. producing basin, is expected to rise 37,000 barrels a day next month, the smallest gain in seven months, according to the U.S. Energy Information Administration (EIA). .

Some 32% of executives surveyed said cost inflation and supply chain bottlenecks were the biggest impediments to oil and gas production growth, while 27% cited fields maturing oil.

“We are preparing for further cost increases in 2023. This amid uncertainty in commodity prices and fears of demand destruction due to the recession,” said an executive, who did not been identified.

Businesses reported their eighth consecutive quarter of rising costs, although the pace of input costs fell to 61.8 in the fourth quarter from 83.9 in the previous quarter.

Overall, executives surveyed were less optimistic about the future, with the Business Outlook Index dropping 20 points to 13.1, below the series average. The outlook uncertainty index jumped to 40.1 from 35.7 in the previous quarter.

Executives expect U.S. crude prices to average $84 a barrel by the end of 2023.

« Commodity prices will likely remain ‘sticky to the high side,’ given the lack of capital to increase supply in the face of demand that doesn’t appear to be abating any time soon, » another executive wrote. (Reporting by Liz Hampton in Denver; editing by Barbara Lewis)