Houston Economic Update from GHP!

A Clearer Picture Emerges —

Metro Houston created 18,700 jobs in ’16, according to the benchmark revisions issued in early March by the Texas Workforce Commission (TWC).1 That’s up from TWC’s initial estimate of 14,800 jobs for the year. The Partnership’s forecast called for Houston to create 21,900 jobs in ’16. The Partnership’s forecast was off by 3,200 jobs, or the equivalent of 0.1 percent of the more than 3.0 million jobs in the region. Houston had a brief spell—June, July and August of last year—when job growth turned slightly negative.

The region lost 3,800 jobs in the 12 months ending August ’16, the lowest point of the downturn. Job growth has trended upward since.

The revised employment data show that the worst is over. Other indicators support that point.

 The Houston Purchasing Managers Index registered 54.2 in February, signaling economic expansion in metro Houston for the fifth consecutive month.

 February home sales set a record for the month. The 12-month moving sales total is at an all-time high, and foreclosures are near their lowest point since ’09, when the Partnership first began tracking the data.

 The North American rig count has risen 90 percent over the past 10 months, from a nadir of 404 in May ’16 to 768 the first week of March ’17.

Houston finished the year with 3,036,000 jobs, the highest level of employment in Houston’s history.

More details:

Click to access Economy_at_a_Glance.pdf

Oil Patch Update — The earnings season is about over and most publicly traded oil and gas firms have released their results for ’16. It should surprise no one that last year was a difficult one for the industry. Nineteen of the two dozen energy firms listed in the table below reported losses for the year. The firms included in the table were chosen because they are representative of Houston’s upstream energy industry.

The industry responded by cutting jobs.

Outplacement firm Challenger Gray & Christmas estimates the industry has shed more than 300,000 jobs worldwide during the downturn. In Houston, the industry cut more than 80,000 jobs. ’17 promises to be a better year for the industry.

 The U.S. Energy Information Administration (EIA) expects West Texas Intermediate (WTI), the U.S. benchmark for light, sweet crude, to average $53.49 in ’17. Last year, WTI averaged $43.29 a barrel.

 Oil consumption continues to grow. The International Energy Agency (IEA) estimates crude demand grew 1.6 million barrels per day (MMbbl/d) in ’16 and forecasts consumption to grow 1.4 MMbbl/d in ’17.

 The Oil & Gas Journal projects that U.S. upstream spending will surge 37.8 percent this year to $120 billion. Simmons & Company expects upstream capital spending to increase as much as 60 percent this year.

 Many oil field services firms, hoping to recapture concessions made during the downturn, expect to raise prices for the first time in several years. Various media and analysts reports suggest that costs, depending on the service and location, will rise 10 to 20 percent this year.

 The North American rig count continues to rise. The fleet stood at 768 the first week of March, up from 489 the same week in March ’16. The industry has added 110 rigs since January 1.

 The agreement by the Organization of the Petroleum Exporting Countries and several large producers to cut output by about 1.8 MMbbl/d seems to be holding. The British consulting firm Energy Aspects estimates OPEC compliance approaches 97 percent. The recovery remains fragile, however.

 An EIA report in early March that U.S. crude stockpiles have risen to record levels sent the spot price for WTI below $50/barrel for the first time since November ’16.

 The OPEC production cuts are holding primarily because Saudi Arabia has reduced its output by more than was stipulated in the agreement. The agreement lasts only through June 30 of this year, at which time the cartel will assess its effectiveness and decide whether to extend the cuts. Most analysts assume they will.

 U.S. production continues to grow, offsetting some of OPEC’s production cuts. U.S. crude output averaged an estimated 8.9 MMbbl/d in ’16, and EIA forecasts U.S. output to average 9.2 MMbbl/d in ’17 and 9.7 MMbbl/d in ’18. Ironically, the industry has begun to discuss the possibility that global oil supplies will struggle to keep pace with demand after ’20, risking a spike in prices, unless major new projects are approved. Oil demand will rise in the next five years, passing the symbolic 100 MMbbl/d threshold in ’19 and reaching about 104 MMbbl/d by ’22, the IEA notes. The agency estimates the world consumed 97.3 MMbbl/d in Q4/16.

But low oil prices have forced many firms to cancel plans for large-scale investments around the world. Energy Aspects estimates more than $300 billion in projects have been postponed or cancelled, removing six MMbbl/d in potential supply. Production from U.S. shale will be able to fill part of the gap, but significant investment in conventional resources is needed as well. Without that investment, the world could face another crude shortage in five years, causing prices to spike and the boom-bust cycle to start again.



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