Oil and gas firms suffer ‘significant contraction’ in 2Q activity

Firms indicated expected acceleration in job cuts

As the U.S. economy begins to recover from the financial fallout of the coronavirus pandemic, the oil and gas industry is still hurting.

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Activity in the oil and gas sector continued to deteriorate in the second quarter, according to the Federal Reserve Bank of Dallas Energy Survey. The business activity index fell to -66.1, from -50.9 in the first quarter, marking the lowest reading in at least four years and indicating a “significant contraction in activity.”

“The impact of the coronavirus pandemic on the oil and gas industry remains severe and widespread,” Michael Plante, Dallas Fed senior research economist, said in a statement. “Survey respondents reported sharp contractions in most indicators, including business activity, oil and gas production and employment.”

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Activity declined to -62.6, from -53.3, among exploration and production firms – and to -73.5, from -46.3, among oilfield service firms.

Most readings were negative for oilfield services firms, including equipment utilization, the operating margins index and prices received.

And where jobs are concerned, survey respondents reported an acceleration in job cuts and a decline in aggregate wages and benefits.

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The negative reading out of the energy sector comes as the U.S. economy shows hints of recovery. While GDP declined 5 percent in the first quarter, the economy added a shocking 2.5 million nonfarm payroll positions in May. The unemployment rate also declined to 14.7 percent even though economists had expected it to climb higher.

According to the Dallas Fed, respondents expected West Texas Intermediate crude prices to hit $42.11 per barrel by the end of the year, which is not too much higher than where prices closed Wednesday.

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