1. Energy Prices and the Economy Stephen Brown Federal Reserve Bank of Dallas

2. Refiners hurt Transportation also hurt

3. Petrochemical producers hurt Petrochemical users also hurt

4. Fertilizer producers hurt Fertilizer users also hurt

5. Electric utilities hurt Electricity users also hurt

6. Aluminum producers hurt Aluminum users also hurt

7. Natural gas and oil producers helped Oilfield services also helped

8. Oil price shocks and U.S. recessions

9. Overview Oil prices Natural gas prices Economic effects of higher energy prices – not a threat to recovery Differential effects by region How energy price shocks affect the economy

10. Why oil prices are higher

11. OPEC Production Near Capacity

12. Why oil prices are higher Strong world oil demand and loss of some production capacity has pushed OPEC close to capacity Disruption risk premium Higher tanker rates

13. Oil price outlook Demand Non-OPEC supply OPEC production/capacity WTI to fall toward $35 per barrel

14. Oil Prices Surge but Expected to Fall

15. Oil Prices Likely to Fall

16. As high as oil prices are, natural gas prices are higher

17. Natural Gas Prices Decouple from Oil

18. Oil and Natural Gas Prices Recoupling?

19. U.S. and Canadian natural gas sources

20. Natural gas prices likely to remain elevated

21. Natural gas price outlook Elevated relative to oil prices Likely range: $3.50-6.50 per million Btu Most likely range: $5.00-6.00

22. Estimated Economic Effects

23. Estimated effects of higher energy prices Assumptions: Oil prices 50 percent higher Natural gas prices 20 percent above historical relationship with crude oil prices

24. Estimated effects of higher energy prices U.S. GDP reduced 1.0 percent –0.85 percent from oil & natural gas together –0.15 percent from natural gas alone GDP deflator increased about 1.0 percent Slight upward pressure on short rates

25. Why Only Mild Economic Effects? More experience with energy price shocks –reduced adjustment costs Oil price increases moderate by historical standards Reduced energy-to-GDP ratio

26. Real Oil Prices Not So High

27. Energy-to-GDP Ratio Falling

28. Regional Effects

29. Regional Effects Uneven Energy-intensive industries most hurt Energy production helped Regions with energy-intensive industries hurt Energy-producing regions helped

30. Higher Oil Prices and State Economies HelpedHurt

31. Energy prices and U.S. economic activity Oil prices to remain elevated Natural gas prices to remain even higher A slight drag on U.S. economic activity Effects uneven across the states