Sunday, March 15, 2009

Domestic Oil Investment to Decline Sharply in 2009

by Bill McBride on 3/15/2009 12:18:00 PM

Here is another area of domestic non-residential investment that will slump in 2009.

From the NY Times: As Oil and Gas Prices Plunge, Drilling Frenzy Ends

The great American drilling boom is over.

The number of oil and gas rigs deployed to tap new energy supplies across the country has plunged to less than 1,200 from 2,400 last summer, and energy executives say the drop is accelerating further.
The following graph compares real domestic investment in petroleum and natural gas with real gasoline prices.

Inventory Correction Click on graph for larger image in new window.

After the oil shock of 1973, oil exploration investment (real dollars) has tracked real gasoline prices pretty closely.

This graph shows oil investment in 2000 dollars. Investment in 2008 was $138 billion in nominal dollars.

The recent rapid decline in gasoline prices suggests investment in petroleum and natural gas exploration and wells could decline by 1/3 or more in 2009 from the $138 billion invested in 2008. This is another area of non-residential structure investment that will decline sharply in 2009 - along with investment in offices, malls and hotels.

Note: Real gasoline prices are annual prior to 1980. The gasoline data is from the EIA.