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Federal Reserve: Mixed Results For U.S. Energy Sector

Demand for energy-related products and services declined even though there are signs of stabilization, according to the United States Federal Reserve’s most recent business activity survey published on Wednesday.

As mentioned in the latest Beige Book report, oil extraction fell on the whole, although individual districts reported various results.

The Cleveland District reported how natural gas output from the shale sites at Marcellus and Utica continued at historic peaks. Despite a slowdown in the rate of growth over the last few months, the industry in the area is more optimistic due to a slight rise in wellhead prices. Wellhead prices, according to the report, still remain below levels that would encourage companies to restart drilling programs. While pipeline projects move ahead in the district, investments in midstream projects have slowed. Additionally, there has been a greater demand for natural gas since electric utilities are pivoting away from using coal.

The Atlanta District, meanwhile, noted that oil inventories remained near historical highs despite a recent drawdown in inventory and continued drop in production. Natural gas supplies remain high but output has declined, whereas energy producers have enacted cost cutting measures stemming from the low price of oil.

The outlook was more mixed in the Kansas City District where there was an increase in the number of active oil and gas rigs, along with more confidence of a rebalancing in the global demand and supply of the commodities by the end of next year. Nevertheless, some local producers continued cost cutting measures, including lowering their debts and laying off employees.

Similarly, the Dallas District also mentioned how “the financial positions of many firms remained distressed” based on the current levels of oil supply and demand. Drilling may have increased, but the need for oilfield services continues to be low.

The Minneapolis District did not fare too well, reporting that the number of active drilling rigs was far below the level seen a year ago. Daily oil output from North Dakota suffered an annual fall of 2 percent in June, while overall energy sector activity remained constant at low levels.

By Erwin Cifuentes for OIlprice.com

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