For the first time in almost a year, there was an increase in the business activity index in the Federal Reserve Bank of Dallas’ Energy Survey.
The quarterly survey found business activity turned positive, jumping 27 points to 21 in the first quarter.
At the same time, the uncertainty index jumped from 43.4 to 53.7 in the first quarter, fueled by the ongoing conflict in the Middle East.
“When we read the comments from respondents, we see a lot of uncertainty. There are different expectations for prices and for duration of the conflict,” said Kunal Patel, senior business economist at the bank.
During a media call to discuss the survey results, he pointed out that questions were asked March 11-19 when West Texas Intermediate was averaging $94 a barrel. In light of the surge in prices, the survey asked respondents if they changed their drilling plans. Of those responding, 50% had not changed their plans, 26% planned a slight increase, 21% planned a significant increase and 3% planned a significant decrease. For large operators — those producing 10,000 barrels a day or more — almost 70% planned no changes, 23% planned slight increases and 8% planned a significant increase. Among smaller firms — those producing less than 10,000 barrels a day — close to 60% planned an increase, another 38% planned no change and a small fraction planned a decrease.
“Typically, firms don’t change plans based on oil prices because prices are so volatile,” Patel said.
Asked what WTI price is needed to cover expenses for existing wells, the average price was $43, up from $41 last year. To drill a new well, the average price was $66, up from $65 last year. Since prices were averaging $94 during the survey, Patel said that indicated producers expect prices to come down.