Three quarters into 2024, TXOGA’s monitoring of global, U.S. and Texas economic indicators shows continued resilience.
Growth projections for 2025 have been upgraded, but economic risks appear to be weighted to the downside. We’ll see a mixed economic outlook as we delve into emerging trends in oil and natural gas markets and their implications for the U.S. and Texas economies.
Earlier this year, we predicted an upward revision in GDP growth, which has proven to be accurate. In July, the International Monetary Fund (IMF) again raised its 2025 growth projections. However, with the raised bar of expectations, economic and financial markets face new risks.
The prospect of a "soft landing" depends on interest rate cuts, which would be triggered by weaker price inflation, employment and GDP growth. Lower relative U.S. interest rates generally weaken the U.S. dollar, making international investments more attractive. Historically, a weaker dollar has correlated with higher oil prices, which could refuel price inflation. Rising economic growth and oil demand, combined with a weaker dollar, could exert upward pressure on oil prices, complicating the potential for further easing of interest rates.
Fiscal policy is another factor to consider. The IMF’s July report highlights a risk scenario in which delays in government spending reductions increase global financial stress. Both major U.S. presidential candidates have pledged policies that will likely deepen deficits. If financial markets react negatively, U.S. consumer spending could suffer, particularly since corporate earnings are already projected to slow in 2025.
Despite these risks, oil demand remains strong and appears likely to set further records in 2025.
Record oil demand and steady supply
In 2024, global oil demand is on pace to average 103.1 mb/d, and the EIA forecasts this will increase to 104.6 mb/d in 2025. Even if GDP growth falls short, oil demand will likely break records in 2025.
Despite record-high demand, global oil markets remain well supplied. The U.S. continues to lead in supply growth, with the EIA projecting an increase of 0.6 mb/d in 2025, matching the combined supply growth of OPEC+ nations. Even with 2.1 mb/d of new oil supplies, the EIA forecasts continued inventory drawdowns through mid-2025, which could strengthen OPEC+’s market influence.
Natural gas: Similar trends, new challenges
Like oil, global natural gas demand and supply are also hitting new records. U.S. natural gas exports have increasingly helped stabilize European and global markets. Mild winters in 2022 and 2023 eased pressure on supply, but normal winter conditions could pull U.S. exports to their limit, prompting a reassessment of supply adequacy.
While oil prices are in line with their historical mean, real U.S. natural gas prices are at record lows for August and September. October futures are priced around $2.20 per million Btu, below historical averages, but December contracts show a 40% increase, showing expectations of tighter supplies.
Texas: A growing force in global supply
At the heart of these trends is Texas, which has demonstrated amazing productivity gains. Over the past five years, U.S. oil and natural gas production has increased by 12%, while Texas has boosted output by 20%, all while using 40% fewer rigs. This productivity growth, led by advancements in the Permian Basin, underscores Texas’ expanding share of U.S. production.
TXOGA estimates that year-to-date through August 2024, Texas accounted for 42.8% of U.S. oil production and 28.8% of U.S. natural gas production. The Lone Star state set records in Q3, including 5.7 mb/d of crude oil, 3.85 mb/d of natural gas liquids, and 33.2 bcf/d of natural gas marketed production.
A balanced view
While the downside risks to the economic outlook have grown, oil and natural gas remain critical to economic activity and global trade. Texas continues to play a crucial role in meeting domestic and international energy needs. With Texas leading U.S. production growth, the state is well-positioned to ensure energy security for years to come.
For more information, visit txoga.org.
