199 - Biden heads to Middle East | Kunal Patel with the Dallas Fed

Energy Week

Biden’s Middle East Trip Is a High-Risk Bid to Reset Saudi Relations
https://www.wsj.com/articles/bidens-middle-east-trip-is-a-high-risk-bid-to-reset-saudi-relations-11657481150
- will he ask for more oil? no indication more Saudi oil would even bring down prices
Oil From U.S. Reserves Sent Overseas as Gasoline Prices Stay High
https://www.reuters.com/business/energy/oil-us-reserves-head-overseas-gasoline-prices-stay-high-2022-07-05/
- this isn't a BAD thing but politicians who think it is could do damage by trying to curb oil exports from US.
Gas Station Owners, Blamed When Prices Rose, Face Risks as Prices Fall
https://www.wsj.com/articles/gas-station-owners-blamed-when-prices-rose-face-risks-as-prices-fall-11657540801
Special Guest Kunal Patel from Dallas Federal Reserve Oil and Gas Survey
https://www.dallasfed.org/research/surveys/des/2022/2202.aspx#tab-questions
What stood out to you in the Q2 survey results? Anything surprising?
- 200 upstream firms signed up in district - 137 responded.
- diffusion indices, give direction of where indicator is going.
- Challenges around cost increases and supply chain issues. Pace of increases is very strong. strongest it's ever been. Firms are dealing with significant cost increases and time lags.
Supply chain issues - 47% rated them as "significantly negative" and 47% rated them as "slightly negative." What supply issues rated amongst the most difficult to procure for firms? How do you see this as impacting production?
- steel tubular rated as good with most significant shortage
- sand also needed for completions. Firms that want to increase activity above plan don't know where they will be able to get steel, labor or sand
- tariff exemption on Ukrainian steel is helpful but Ukrainian steel mills aren't able to produce. Executive said, get rid of steel tariffs from other countries
- Sand could be trucked in but also shortage of truck drivers.
- Will take 7-8 months to get a new well drilled and producing.
A number of analysts expect U.S. crude oil production to grow by nearly 1 million barrels per day (mb/d) from December 2021 to December 2022. By how much do you expect U.S. oil production to grow?
37% said they expect oil production to increase by between 800,000bpd and 1 million bpd but almost as many (34%) said they expect production to grow by less than or equal to 800,000 bpd. Are analysts being too optimistic with their growth forecasts, especially given how executives feel supply chain issues are impacting them?
- hard to say whether analysts are being too optimistic.
- higher prices provide incentive to grow. But cost inflation is major. Most people thought costs would increase 10%, but its likely much more than that (maybe 25%). Dallas Fed thinks it will be less than 1million bpd growth
Government regulations are still a significant factor driving uncertainty for firms but supply chain issues, inflation and labor shortages have eclipsed that - is this a change from earlier surveys?
- generally higher oil prices mean more money and less uncertainty. Now, prices increased but uncertainty also increased.
- Lots of comments saying government regulation is important.
- Kansas Fed asked same question and firms said that government regulations were cause of most uncertainty, not supply chain, labor, inflation etc. Different region - not the Permian. OK, CO, WY.
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