May 21, 2024
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OIL & GAS

Oil and Gas Activity Declines in U.S. Midwest in Q1 2024

Oil and gas energy activity in Oklahoma, Colorado, and the northern part of New Mexico saw a decline in the first quarter of 2024, according to the Federal Reserve Bank of Kansas City’s quarterly survey of energy activity released on Friday.

According to Reuters, the survey, which included responses from 33 firms operating in the Midwest, the Rockies, and parts of New Mexico, revealed that drilling and business activity contracted for a fifth straight quarter.

Respondents expressed concerns about the outlook for the next six months, with expectations of continued declines in activity.

Consolidation in the oil sector was a notable expectation among survey participants, with over 75% agreeing that it would lead to more cautious production growth. This sentiment reflects a shift towards greater efficiency and optimization in response to challenging market conditions.

Regarding price outlook, respondents anticipated West Texas Intermediate (WTI) oil prices to average $81 a barrel in six months and $83 a barrel in one year.

Companies indicated that an average oil price of $65 a barrel was necessary for profitable drilling, reflecting an increase from the estimate of the previous year. Substantial drilling expansion would require WTI prices to reach $90 a barrel.

In the natural gas market, Henry Hub natural gas prices were forecasted to average $2.16 per million British thermal units (mmBtu) in six months. Oversupply in the natural gas market has led to 3-1/2-year lows in prices, with Friday’s trading at $1.763 per mmBTU.

“The USA is way over-supplied in natural gas, hence exports of LNG are critical. As LNG projects for exports are delayed, natural gas will back up in the USA,” one respondent said.

Overall, the survey highlights the ongoing challenges faced by the oil and gas industry in the region, with declining activity, cautious production growth, and market oversupply impacting both sectors.

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