Pessimism and Uncertainty Continue to Impact Oil and Gas Activity
The oil and gas sector continues to grapple with challenges, as highlighted in the latest Dallas Fed Energy Survey. Executives in the industry reported lingering pessimism and uncertainty affecting their business activities in the fourth quarter of 2025.
Pessimism and Uncertainty Persist in Oil and Gas Activity
According to the survey results, the overall business activity index for the Eleventh District remains negative, though it held steady at -6.2 for the quarter. The company outlook index, indicating firms’ future expectations, improved somewhat but still sat at -15.2, up from -17.6 in the previous quarter. This suggests a continued sense of caution among executives.
Production and Employment Trends
Oil and gas production levels showed minimal changes in the fourth quarter. The oil production index rose slightly from -8.6 to -3.4, while the natural gas production index improved from -3.2 to 0.
Employment trends also reflected this uncertainty, with the aggregate employment index dropping from -1.5 in the third quarter to -10.8. Workers also faced reduced hours, as indicated by a fall in the aggregate employee hours index from -3.7 to -9.3.
- Aggregate Wages and Benefits Index: decreased from 11.5 to 6.2, but remained positive.
- Equipment Utilization Index: steady at -12.2.
- Operating Margin Index: remained negative at -31.7.
Cost and Pricing Dynamics
Cost dynamics showed a reduction in growth speed. Input costs for oilfield services firms fell from 34.8 to 24.4. However, finding and development costs index decreased significantly from 22.0 to 5.7, indicating a tougher environment for new projects.
Rising concerns also reflected in the prices received for services, dipping from -26.1 to -30.0, indicating that service firms are experiencing downward pressure on pricing.
Future Price Expectations
Looking ahead, surveyed firms provided their projections for West Texas Intermediate (WTI) oil prices. The average expected price for year-end 2026 is $62 per barrel, while longer-term expectations suggest prices of $69 per barrel in two years and $75 in five years. Responses varied widely, with estimates ranging from $50 to $82 per barrel.
Similarly, for natural gas prices, the respondents forecast a Henry Hub price of $4.19 per million British thermal units (MMBtu) by the end of 2026, with expectations rising to $4.57 per MMBtu in two years and $5.00 per MMBtu in five years.
Survey Overview
The Dallas Fed Energy Survey collected responses from 131 energy firms, consisting of 90 exploration and production firms and 41 oilfield services firms, between December 3 and December 11. The survey serves as a crucial tool for assessing the current state of oil and gas activity in Texas, northern Louisiana, and southern New Mexico, collectively known as the Eleventh District.
The challenges ahead for the oil and gas sector underscore the persistent pessimism and uncertainty that are shaping industry responses and operational strategies.
