Last updateFri, 03 Jul 2020 5pm

Falling Oil Prices Drag Down U.S. Business Investment

The dramatic decline in the price of oil has led to massive investment reductions by U.S. oil and gas producers. The Federal Reserve Bank of Dallas expects at least a 35% drop in such investment between the first and second quarters of 2020 in real (inflation-adjusted) terms, which will reduce nonresidential business fixed investment by 6% alone.

The outlook for capital expenditures in 2020 is highly uncertain but skewed to the downside.

EIA Revises Down 2020-21 U.S. Oil, Gas Production Forecasts

The U.S. Energy Information Administration (EIA) expects U.S. crude oil production to fall in 2020 and 2021 as efforts to mitigate the spread of COVID-19 continue to result in a steep drop in demand for petroleum products and crude oil prices. In its May Short-Term Energy Outlook, EIA forecasts that U.S. crude oil production will average 11.7 million barrels per day (b/d) in 2020 and 10.9 million b/d in 2021. These levels would be 500,000 b/d and 1.3 million b/d, respectively, lower than the 2019 average of 12.2 million b/d.

Chemical Activity Barometer Sinks in April

The Chemical Activity Barometer (CAB) from the American Chemistry Council (ACC), fell 5.5% in April on a three-month moving average basis following a downwardly revised 2.9% decline in March. On a year-over-year basis, the barometer fell 7.3% in April.

The unadjusted data shows a 6.7% decline in April following an 8.9% decline in March and a 1.0% decline in February. The diffusion index slumped from 47% to 35% in April. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for March was revised downward by 1.04 points and that for February was revised upward by 0.07 points.

“The latest CAB reading is consistent with a recession,” said Kevin Swift, chief economist at ACC. “The declines of April and March are the most pronounced, pervasive and persistent in the post-World War II period.”

U.S. Ethanol Exports Fell for First Time in Four Years

The U.S. exported 96,000 barrels per day (b/d) of fuel ethanol in 2019, the first annual drop in U.S. ethanol exports since 2015. Despite the decrease, total exports remained at the second-highest level on record. The U.S. exported more fuel ethanol than it imported in 2019, the 10th year in a row as a net exporter.

U.S. fuel ethanol exports fell by 14% in 2019 even though the number of export destinations increased from 34 destinations in 2018 to 39 destinations in 2019. Nearly half of all ethanol was shipped to Brazil and Canada, despite these countries decreasing their imports of U.S. ethanol by 34% and 5%, respectively.

Gas, LNG Sectors See Volatility in Their Future

“The future for gas and LNG is highly uncertain, particularly as new supply continues to come online in a market that may struggle to absorb it,” Petroleum Economist reports.

“Economic growth is becoming an increasingly important proxy for greater gas usage globally. Industrial sector demand–including gas as a feedstock for petrochemicals and fertilizers–has increased in significance as a growth driver relative to gas consumption for power generation. And there is now a huge question mark around economic growth moving forward due to the coronavirus pandemic.”

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