While many in the rental equipment industry have predicted an economic downturn as a result of sharp declines in oil and gas prices, this month's Rental Sentiment Survey indicates that declines in oil and gas intensive regions have been more than offset by gains in non-oil and gas regions. The result is overall net gains in construction activity.
In fact, despite what some have deemed “contagion fear,” this month’s Rental Sentiment Index (RSI) has continued an overall upward trend, coming in at 6.4 as compared to last month’s 6.2 score. The RSI is based on a 10-point scale, where readings higher than 5.0 indicate expansion. A 6.4 reading signals moderate rental expansion, which industry analysts view as the optimal growth environment for equipment rental companies.
Rental demand is not expected to be adversely affected by declining oil prices, according to this month’s survey results. The drilling season for 2015 is largely set and will continue to absorb equipment volumes through the end of this year. However, there could be ramifications for the 2016 drilling season. Data shows that if prices stay at current lows for the next 10 to 12 months, there could be declines in rental activity in 2016, specifically in oil-and-gas-intensive regions.
Declining oil prices could also have a negative impact on rental rates in oil and gas regions in 2016. But for now, U.S. overall rate growth expectations continue to hold steady in survey data as compared to prior months.
The expectations are in keeping with what has been a trend towards a positive outlook of the rental market. January survey participants expressed an “optimistic” sentiment for the rental industry outlook, noting that “the market as a whole seems healthier than it was last January." Within construction verticals, “non-residential construction volumes are expanding,” and “customers seem willing to absorb a modest price increase.” Participants in the survey said that they expected minimal adverse impact to the overall rental demand as a result of declining oil prices. They anticipate that any potential macro slowdown in oil and gas-reliant states will be more than offset by the stimulus effect that lower oil prices will have in non-oil and gas states.
The survey population consists of executives and senior managers in the construction equipment rental industry covering every region of North America representing more than $13 billion in annual revenues. Data from this month's survey reflects responses from 91 equipment rental executives.
The Rental Sentiment survey is a partnership between Piper Jaffray and Rental Equipment Register (RER).
