Yahoo Finance The US oil and gas sector is stagnating as production slows amid low energy prices
A Wednesday Dallas Fed survey illustrated a slowdown in the US oil and gas sector to start 2023.
Energy executives said oil production continued to increase but at a slower rate, the survey showed.
"Growth in the oil and gas sector slowed to a crawl in the first quarter, as firms' faced increasing costs."
Energy executives reported a steep slowdown in US oil and gas activity that indicates the industry is near stagnation, according to an activity index published Wednesday by the Dallas Federal Reserve.
The index — a broad measure of conditions facing the surveyed energy firms in Texas, southern New Mexico, and northern Louisiana — clocked in at 2.1 for the first quarter, nearly 30 points lower than the previous quarter.
"The near-zero reading indicates activity was largely unchanged from the prior quarter, a break from the more than two-year stretch of rising activity," Dallas Fed researchers said in a report.
That drop has coincided with a dramatic fall in energy prices since mid-2022 after spiking in the immediate fallout of Russia's invasion of Ukraine.
On Wednesday, West Texas Intermediate crude hovered at $73 a barrel, down about 40% from a June high. And US natural gas prices have tumbled 80% from an August high.
Meanwhile, a separate index reading from the survey showed oil production remained positive but slowed, falling to 10.5 from 25.8, with the natural gas production index sinking to 7.4 from 29.4.
"Growth in the oil and gas sector slowed to a crawl in the first quarter, as firms' faced increasing costs," Michael Plante, Dallas Fed senior research economist, said in a statement. "Our respondents also expressed a worsening view of the near-term outlook for the energy sector."
Energy companies reported rising costs for the ninth consecutive quarter, and data showed executives are becoming increasingly uncertain in their forecasts.
That pessimism is reflected in the company outlook index, which showed a 27.2-point decline from the prior quarter. Execs also pointed to heightened inflation pressures and the health of the global economy as the factors that would most sway their company's profitability this year.
"Rising costs and other factors have increased breakeven prices to profitably drill new wells," Plante said. "The average breakeven price across all respondents was $62 a barrel, up more than 10% from the average last year. Despite the increase, most respondents can still profitably drill a new well at current prices."
March's financial tumult, starting with the collapse of Silicon Valley Bank, rattled the energy sector this month because it shifted broader economic outlooks, according to Gregory Brew, oil analyst at Eurasia Group.
"[M]arket actors and traders had broadly expected the price situation this quarter to strengthen, based on recovering Chinese demand and generally good economic forecasts," Brew told Insider previously. "So these recent events have shaken those expectations."
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