Economists see growth slowing amid geopolitical uncertainty

By Emily Querubin, Associate Editor on 4/5/2019

IRVING -- The Texas Alliance of Energy Producers Annual Meeting and Expo was held this week in Irving, Texas, just northwest of Dallas. Guests were welcomed by the Alliance’s own Jim Beck, the statewide organization’s chairman of the board.

Petroleum Economist Karr Ingham (left) moderated an oil and gas economic panel made up of API Chief Economist Dr. Dean Foreman (center) and Dr. Mine Yucel, senior V.P. and senior research advisor, Federal Reserve Bank of Dallas.

Beck introduced Petroleum Economist Karr Ingham, who has been a devoted member of the Alliance for nearly 20 years. To open the event’s general session, Ingham moderated an oil and gas economic panel, comprised of Dr. Dean Foreman, chief economist with the American Petroleum Institute (API); and Dr. Mine Yücel, senior V.P. and senior research advisor with the Federal Reserve Bank of Dallas.

During the panel session, the Texas vs. national economies were examined. Foreman assured attendees that although the Permian has “had some ebbing” earlier this year, it is still going strong. Cost effectiveness and solid productivity have been the primary drivers behind the Permian basin. However, as crude pipelines hit capacity limits, uncertainty about production and price differentials is increasing. Not to mention, the EIA reported that Permian DUC wells are up more than 36% y-o-y, to over 4,000.

According to Foreman, U.S. oil and gas production has been closely linked to economic growth. He said that between 2015 and 2018, changes in U.S. quarterly production of crude oil, natural gas and NGLs directly correlated at +0.82 with real GDP growth. And, although the U.S. shale revolution has significantly reduced gas prices and price volatility—half of what it was about a decade ago—we’re not out of the woods yet. Yücel, who also is former president of the U.S. Association for Energy Economics and National Association for Business Economics, said, “Because of geopolitics, there is a lot of uncertainty in the market.”

Yücel discussed the oil market on more of a global scale. She explained that although U.S. production hit a record high in 2018, OPEC+’s inability to maintain stability is increasing uncertainty within the global market. Additionally, slower global growth is expected to stifle oil demand.

Because of the U.S. shale boom, Yücel explained that there is less dependence on oil, particularly foreign oil, and lower imports, which is safeguarding against vulnerability to oil price shocks. Additionally, the economy is getting more efficient, with fewer regulations on oil price controls, gas price ceilings, petroleum allocation and transport. The somewhat recent removal of the oil export ban also has had a profound impact on economic growth.

Despite the explosion in domestic production since 2014, Foreman and Yücel agreed that “economic growth is expected to slow” this year, as oil prices taper off at approximately $60/bbl and the global industry faces more geopolitical uncertainty surrounding Iran sanctions and Venezuela declines.

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