Dallas Fed: Largest US Oil, Gas Patch’s Outlook Deteriorating

The business outlook in the U.S.’ largest oil and gas patch has “deteriorated,” according to a new Dallas Fed survey of producers and oilfield service (OFS) firms.

The survey's uncertainty index clocked in at 47.1, the third-highest recorded. The highest was 63.8 in March 2020 upon the start of the pandemic followed by 62.6 in March 2023 as the Russia-Ukraine oil and gas price bumps subsided.

“Since the [quarterly] surveys began, the average on that index has been 23,” Kunal Patel, a senior business economist for the Federal Reserve Bank of Dallas, said in a July 2 media briefing.

“The executives are [usually] a little bit uncertain, but this suggests that they're more uncertain in the latest quarter compared to historically.”

The Dallas Fed began conducting the survey in March 2016. At the time, WTI was $38.

In addition to the newest survey’s multiple-choice responses from 136 participants, Patel pointed to their optional write-in comments that “highlight firms’ uncertainty.”

Oil and gas producers wrote that external “chaos” and “antics” as well as “noise” and “turmoil” are affecting their going-forward confidence.

One E&P questioned whether some oilfield service (OFS) firms, which are already being “squeezed,” will “survive."

Separately, an OFS operator said smaller shops “are rapidly failing and going out of business. This will eventually undermine our country’s tremendous ability to ramp up when and if the need for increased production arises.” 

‘Chaos and tariff antics’

The participants’ remarks in June were in hot contrast to those in the March survey. At the time, the spot price for WTI at Cushing, Oklahoma, was roughly $68, down from $78 in mid-January, according to U.S. Energy Information Administration (EIA) data.

That plummeted to $60 and the CME Group prompt-month contract fell to $54 after President Trump announced nearly global tariffs in his “Liberation Day” declaration and OPEC+ began flooding the market with oil.

One E&P told the Dallas Fed in the newest survey, “The Liberation Day chaos and tariff antics have harmed the domestic energy industry. ‘Drill, baby, drill’ will not happen with this level of volatility.

“Companies will continue to lay down rigs and frac spreads.”

Another wrote, “There is constant noise coming from the administration saying $50/bbl oil is the target. Everyone should understand that $50 is not a sustainable price for oil. It needs to be mid-$60s.”

Another reported, “We are spending way too much time and resources on trying to predict the price of oil. We dropped our rig count 50%. Also, suppliers are being squeezed and there is a concern some of our vendors will not survive.”

The ability to continue is a concern, another E&P reported. “The current political uncertainty is causing apprehension and concern about small, independent oil and gas companies’ economic viability.”

Another producer wrote, though, “Thank God the [Biden] administration is gone and so are their anti-energy policies!”

‘Deteriorated’

Patel said in the media briefing that “the key point from this survey release is that conditions deteriorated for companies in the oil and gas sector this quarter.”

Nearly half of the E&P respondents expect to drill fewer wells this year than they forecasted in January.

At a 12-month $60 WTI strip, most expect their production to decline.

At $50/bbl, which is President Trump’s target WTI price, “almost half of the E&P respondents believe their oil production would decline significantly,” Patel reported.

Oilfield employment fell slightly and current employees are working fewer hours, the survey found, while participants reported in December that they expected their headcount to be unchanged this year.

E&Ps that produce more than 10,000 bbl/d said they need $61/bbl to make a profit on new drilling. The average among all 91 E&P participants was $65.

Jack Williams, an Exxon Mobil senior vice president, touched on uncertainty as well while at an energy conference June 24.

“We've had perhaps the shortest oil spike in the history of the oil markets. It started on a Sunday evening [June 22]; ended by Monday morning [June 23],” he said.

“... I think it's really hard to predict near term where things are going to go. We have a lot of volatility out there.”

Survey timing

The survey was conducted between June 18–26.

Israel and Iran were at war between June 13 and June 24, pushing WTI to $78, but that fell to $64 on June 23, which was the June 11 price, when the countries agreed to a ceasefire.

Among the 136 participants on the Dallas Fed’s survey, 91 are oil and gas producers and 45 are OFS firms.

The Dallas Fed region consists of Texas, North Louisiana and southern New Mexico. That includes the Permian Basin, the Eagle Ford, Haynesville and Barnett shales, and other basins and plays.

The region’s shale and other tight rock alone produced more than 7 MMbbl/d and 38 Bcf/d in the first quarter, according to EIA data.

Texas produced 5.8 MMbbl/d and 33 Bcf/d in April overall, including from conventional rock formations. In comparison, total U.S. production in April from all formations was 13.5 MMbbl/d and 116 Bcf/d.