By Colin Kellaher
Energy activity in the middle of the U.S. expanded in the fourth quarter of 2020, indicating some recovery from historic lows earlier in the year, but producers aren't expecting a near-term rise in prices that would prompt a substantial increase in drilling, according to a survey by the Federal Reserve Bank of Kansas City.
The quarterly Tenth District Energy Survey's key index of drilling and business activity rose to 40 in the quarter, up from a reading of 4 in the third quarter and a vast improvement from the minus 61 reading recorded in the second quarter, when fallout from the coronavirus pandemic paralyzed vast swaths of the economy.
However, the bank said its year-over-year indexes remained negative in the quarter, and it noted that while energy firms are increasing output, they are doing so with fewer employees, and more job cuts are expected.
The survey's future drilling and business activity index came in at 26, up from readings of zero in the two previous quarters and turning positive for the first time since the first quarter of 2019.
While the future index indicates that more firms expect energy activity to expand, the bank said producers expect oil and gas prices to remain below the levels they need to drive a major increase.
Energy firms surveyed by the bank, on average, said they need to see oil at $56 a barrel and natural gas at $3.28 per million British thermal units before they significantly ramp up drilling. However, the companies indicated that they think it will take two years for oil and more than five years for gas to reach those levels.
The price for West Texas Intermediate crude is expected to average $52 a barrel in one year and $56 a barrel in two years, according to the survey, while the average expected Henry Hub natural-gas prices were $2.88 per million Btu in one year and $3.23 per million Btu five years out.
WTI futures, the U.S. crude benchmark, were recently up 1.7%, to $51.69 a barrel, while natural-gas futures fell 1.4%, to $2.65 per million Btu.
The Kansas City Fed's quarterly survey monitors oil- and gas-related companies located or based in the Tenth District, which includes Colorado, Oklahoma, Wyoming, Nebraska, Kansas, the northern half of New Mexico and the western third of Missouri.
Write to Colin Kellaher at colin.kellaher@wsj.com
(END) Dow Jones Newswires
January 08, 2021 14:12 ET (19:12 GMT)
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