US oil, natgas drilling up on high energy - Fed

23 July 2008 20:56  [Source: ICIS news]

HOUSTON (ICIS news)--US oil and natural gas drilling has risen sharply as a result of rising energy prices, the Federal Reserve Board (Fed) said on Wednesday.

However, overall economic activity has slowed in the US, the Fed said.

The Fed is the US central banker, and it regularly issues a survey of the US economy, known as the "Beige Book." The survey reviews economic activity in each of 12 districts within the Federal Reserve.

In June and early July, consumer spending slowed in nearly every district, except for Cleveland, the Fed said.

Automobile sales were weak throughout the US, especially for large vehicles, the Fed said. Some dealers in the San Francisco district were becoming increasingly reluctant to accept trades for trucks and sports utility vehicles (SUVs).

Automobiles are an important chemical end market, in that each has an average of $2,200 (€1,386) worth of chemistry, according to the American Chemistry Council (ACC). Automobile parts include rubber hoses, plastic dashboards, catalysts, fibres, adhesives and coatings.

Housing, another important chemical end market, either weakened or remained sluggish, the Fed said. House prices fell in most districts, and inventories remained high.

In addition, credit standards continued to tighten for residential and construction loans, the book said.

The housing industry is a key downstream consuming sector for chemicals and chemicals-based products such as roofing materials, adhesives, insulation, siding, paints and coatings, synthetic materials, polyvinyl chloride (PVC) pipes and a broad range of other construction materials, the council said.

Commercial real estate also slowed down, although some districts reported a slight improvement, the Beige Book said.

On the other hand, drilling activity has increased due to higher energy prices, the Fed said. Drilling companies reported difficulty finding qualified workers.

In other news, oil-based ethylene producers are operating at relatively low rates in the Federal Reserve district including Dallas, Texas, while natural-gas based producers are operating all out, the Fed said. Overseas demand for polyethylene (PE) remains strong, offsetting weak domestic markets.

($1 = €0.63)

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