(Photo by David McNew/Getty Images)
Electricalmarketing 3329 Gettyimages 480270745oilgas595
Electricalmarketing 3329 Gettyimages 480270745oilgas595
Electricalmarketing 3329 Gettyimages 480270745oilgas595
Electricalmarketing 3329 Gettyimages 480270745oilgas595
Electricalmarketing 3329 Gettyimages 480270745oilgas595

Sad Song Continues in the Oil & Gas Market with No Fast Relief In Sight

April 22, 2016
While the decline in oil prices seems to have flattened out in recent weeks and some market forecasters see this business improving a little bit this year and making better progress in the 2017, some disturbing trends exist in the oil & gas industry employment data and in the closely watched Baker Hughes rig count.

Oil prices continue to hover around $40 per barrel, and market forecasters and some recent industry data don’t point to any dramatic increases over the next 12-18 months.

That’s not particularly great news for any electrical companies that depend on business from the various U.S. oil & gas patches, where drilling activity is down in many areas by 40% to 60% year-over-year. About the only good news on the horizon in the oil & gas industry is that prices aren’t expected to puncture the $30 level again, according to several news sources

While the decline in oil prices seems to have flattened out in recent weeks and some market forecasters see this business improving a little bit this year and making better progress in the 2017, some disturbing trends exist in the oil & gas industry employment data and in the closely watched Baker Hughes rig count. EM did some analysis of the Bureau of Labor Statistics’ national employment data for the oil & gas market and found that since late last year the pace of the monthly declines in employment in this niche are increasing rather than bottoming out. We also discovered that the decline in the rate of change in the 12-month moving average for oil & gas employment is actually worse than the decline in the  three-month moving average. The longer-term rate-of-change trend crossed below the three-month trend in Nov. 15 — a dismal chart scenario that stock chart analysts call the “death cross.”

As you can see in the chart on page 2, the news isn’t much better right now in the Baker Hughes rig count data. It reflects the huge YOY declines mentioned earlier and looks even worse when you compare this week’s data with the market highs of three or four years ago.

Oil & gas market forecasters don’t see any fast relief in the pipeline. According to a April 20 release from the Energy Information Administration (EIA), “In response to continued low oil prices, onshore crude oil production in the Lower 48 states is expected to decline from an average of 7.41 million barrels per day (b/d) in 2015 to 6.46 million b/d in 2016 and to 5.76 million b/d in 2017. Increased production from the Gulf of Mexico is not enough to offset those declines, with total projected U.S. production falling from 9.43 million b/d in 2015 to 8.04 million b/d in 2017.”

The EIA report also said the sharp decline in oil prices since 4Q 2014 has rocked drilling in the United States. The number of active onshore drilling rigs in the Lower 48 states fell 78% (from 1,876 to 412) between the weeks ending on Oct. 31, 2014, and April 15, 2016, according to data from Baker Hughes.

“The decline in active rigs and well completions is projected to result in month-over-month onshore oil production declines of 120,000 b/d through Sept. 2016,” the report said. “EIA forecasts Brent crude oil prices averaging $35/b (barrel) in 2016 and $41/b in 2017, with the December 2017 price averaging $45b.”

The report also said the number of rigs in the Lower 48 states will continue decreasing through mid-2016 before slowly increasing in 2017 and that, “Expected Lower 48 production will continue to decline — although at a slowing rate — throughout 2017.”