Role of Macroeconomic Indicators: US Oil&Gas Industry
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This article discusses the role of macroeconomic indicators in the US oil and gas industry, including the importance of monitoring inflation rates and recent trends in the industry. It also highlights the industry's contribution to the US economy.
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Running Head: ROLE OFMACROECONOMIC INDICATORS: US OIL&GAS INDUSTRY1 ROLE OFMACROECONOMIC INDICATORS: US OIL&GAS INDUSTRY Student Name Institution Affiliation Facilitator Course Date
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ROLE OFMACROECONOMIC INDICATORS: US OIL&GAS INDUSTRY2 Size of Oil and Gas Industry in U.S Oil and Gas production industry in United States began early in 1800’s. Current statistics have indicated that U.S. produces 571 million tons and 734.5 cubic meters of oil and gas respectively. Also, U.S oil and gas reserves are among the largest in the world. Notably, U.S. has also been ranked as the largest oil and gas consumer nation, with an approximate consumption of 913.3 million metric tons of oil and 27.1 trillion cubic feet of natural gas as the 2017 statistics (Berk & Rauch, 2016). This has made Texas to be the leading producer of both oil and natural gas in U.S. followed by Pennsylvania and then Virginia. In consideration to the industry’scontribution to the economy of U.S., it has continually increasedits absorption rate of workers. For instance, between 2011 and 2015, statistics by the American Petroleum Industry indicated that the industry’s job creation rate rose from 500,000 to 10.3 million, accounting for 5.6% of the country’s employment (EIA & GPO, 2016).PwC report has indicated that oil and gas industry in U.S. contribute more than$1.1 trillion towards the country’s GDPof $15 trillion annually.That is almost 7.3% of the total U.S. economy output. Basically, that percentage comes from $481 billion indirect impact, $494 billion inindirect impact and $126 billion ininduced impact. Noteworthy Macroeconomic Indicator in U.S. Oil and Gas Industry Traders and potential investors use macroeconomic indicators to understand the basic fundamentals of different markets. Economic indicators considered by these people however depends on the specific markets they operate in, for instance, the oil traders focus on economic indicators providing information in regard to petroleum industry. Mainly, inflation rate of crude oil in U.S. is a macroeconomic indicator that should be monitored. This popular macroeconomic indicator in U.S (Fisher, 2015), is influenced by the amount of crude oil which has been reserved
ROLE OFMACROECONOMIC INDICATORS: US OIL&GAS INDUSTRY3 for future use. Its quantity and all the changes that it undergoes signal the trends in the industry over a specific period of time. Inflation rate of oil industry is influenced by the total U.S. crude oil and lease condensate that is currently at the refineries, pipelines, and terminals. Since this information is released on weekly basis by Energy Information Administration, traders in the industry must compare the inventory number of crude oil to expectations and along the past levels in order to gain insights into the future moves of oil prices. For instance, if the inventories are on their increasing trend, it acts as an indication that production outstrips demand and that should signal future decline in energy prices (Mügge, 2016). On the other hand, if the inventories are decreasing, the traders are signaled to expect an increase in oil prices. Therefore, considering these facts indicates how importance this macroeconomic indicator is in the industry for any trader who wishes to keep track on the market trends within the industry and to ensure that he/she achieves customer satisfaction as well as profitability. Also, the release of crude oil inventories is accompanied by other important facts pertaining the oil industry like domestic production, utilization, other inventory levels (like motor gasoline), refinery input and import/ export data (Wang, Chen, Jha & Rogers, 2014). This information is equally important for monitoring by the stakeholders in the industry as it helps them to gain more insights in regard to fundamentals of crude oil market. For instance, traders will assess the refinery use of oil to define the capacity of oil available to have additional supply to the market. In a case where refinery use is in an increasing trend, it is assumed that putting more oil through refineries may be difficult hence leading to reduced supplies and increased prices. Recent Trends in inflation rates of Oil in U.S
ROLE OFMACROECONOMIC INDICATORS: US OIL&GAS INDUSTRY4 The inflation rate of oil in U.S between the year 2010 and 2015 was minimal. This trend changed in 2016 when the production began to decline. In 2017 due to adoption of new technology in oil mining, production increased again and prices began to reduce leading to reduced rates of inflation (Werner, Inkpen & Moffett, 2016).The low rates of inflation in this industry have been attributed to growth in tight oil production. Sources (U.S Energy Information Administration) Conclusion Inflation rates in oil industry have been projected to continue declining with the adoption of modern production technologies which facilitates efficient and effective production. Following such an advancement in production technology, the prices are expected to continue declining as the product will be more available and plenty and hence inflation rates will continue to decline in the industry.
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ROLE OFMACROECONOMIC INDICATORS: US OIL&GAS INDUSTRY5 References Berk, I., & Rauch, J. (2016). Regulatory interventions in the US oil and gas sector: How do the stock markets perceive the CFTC's announcements during the 2008 financial crisis?.Energy Economics,54, 337-348. Energy Information Administration (US), & Government Publications Office (Eds.). (2016).International Energy Outlook 2016: With Projections to 2040. Government Printing Office. Fisher, F. M. (2015).Supply and Costs in the US Petroleum Industry (Routledge Revivals): Two Econometric Studies. Routledge. Mügge, D. (2016). Studying macroeconomic indicators as powerful ideas.Journal of European Public Policy,23(3), 410-427. Wang, Q., Chen, X., Jha, A. N., & Rogers, H. (2014). Natural gas from shale formation–the evolution, evidences and challenges of shale gas revolution in United States.Renewable and Sustainable Energy Reviews,30, 1-28. Werner, S., Inkpen, A., & Moffett, M. H. (2016).Managing Human Resources in the Oil & Gas Industry. PennWell Books.
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