The outlook comes as a global energy crunch sends prices for oil, natural gas and power soaring, roiling everything from manufacturing to food production. U.S. drillers are keeping output in check as they respond to investor pressure to pay down debt and return cash to shareholders, adding to the inflationary pressure. Of all the labor shortages that are wreaking havoc on the U.S. economy — from cashiers to chefs — few are as thorny or potentially as permanent as the one that has a grip on the oil sector. Thousands of roughnecks and engineers are wary of returning to jobs like the ones they lost when the pandemic sent the price of crude oil crashing last year. Meanwhile, supply-chain snarls mean it’s “taking longer for companies to receive inputs,” the Dallas Fed said. The index for supplier delivery time rose to the highest since the survey’s inception in 2016.
For most of this year, oilfield service companies have mostly been able to pass along input costs to their clients in the form of higher service prices, but that’s also generally kept them from booking extra profits, Citigroup Inc. has said. Inflation could reach 12% or more by the end of this year for the sector in North America, analysts including Scott Gruber wrote in a June investor note. One respondent to the Dallas Fed survey pinned the blame for inflation on closely held shale explorers that aren’t beholden to investor demands for discipline. Private producers are running the most drilling rigs in almost two years. “Increased activities by private E&P firms is leading to cost inflation,” the respondent said. “Continued oilfield services consolidation may contribute to it further.”
