The oil and gas sector in the United States has experienced a downturn in recent months, according to a recent survey by the Federal Reserve Bank of Dallas.
The quarterly survey, which assesses 136 oil and gas executives in Texas, northern Louisiana, and southern New Mexico, revealed a decline in crude production, employment, and employee hours during the second quarter.
This contraction comes amidst ongoing geopolitical tensions and general fears regarding the future of the industry.
Michael Plante, an assistant vice president and economist at the Dallas Fed, noted that conditions have worsened for companies in this sector, with the survey indicating a slight overall decline in activity and production.
The business activity index, the survey’s most comprehensive measure of conditions for energy firms, plummeted to -8.1, a significant drop from the previous quarter’s reading of 3.8.
Furthermore, uncertainty among respondents has soared by four points, reaching 47.1.
The impact of tariffs has also become a pressing issue, with 75% of executives reporting increased costs related to drilling and completing new wells.
Notably, 26% of executives indicated that these tariffs have raised costs by 4% to 6%.
Despite a recent temporary price rally spurred by the conflict between Israel and Iran, industry players remain anxious about the long-term outlook for oil prices and their ability to sustain profitable production levels.
Currently, the survey reveals that the oil production index has fallen to -8.9 from 5.6 in the first quarter of 2025.
Meanwhile, the natural gas production index has decreased from 4.8 to -4.5, and the employment index has dropped to -6.6 from a neutral 0 in the previous quarter.
The data highlights that while the United States remains the world’s largest producer of oil and gas, uncertainties surrounding demand have led domestic companies to scale back production.
Recent findings suggest that almost half of exploration and production firms now expect to drill fewer wells in 2025 than initially planned at the year’s start.
Among these firms, 26% have significantly reduced their drilling expectations, while 21% reported only a slight decrease.
In contrast, more than 30% of firms have maintained their expectations, and 19% have actually increased them.
Morningstar DBRS analysts commented that persistently low oil prices, an end to significant improvements in operating efficiency, and declining quality acreage in U.S. shale formations pose challenges to the capital returns model followed by operators in the field.
The consistently weaker crude prices have further discouraged production, leaving many producers hesitant to ramp up supply.
While most executives anticipate only a minor effect on production if oil prices remain around $60 per barrel over the next year, nearly half believe that production will decrease considerably if prices drop to $50 per barrel.
Additionally, over half of oil and gas support services executives—specifically 58%—project that their primary service or product prices would drop significantly if WTI crude oil prices fell to $50 within the next year.
Moreover, firms are preparing for future challenges concerning produced water management, which could hinder drilling and completion activities in the Permian Basin over the next five years.
Approximately 42% of the firms predict that these challenges will lead to a slight constraint on their operations, while 32% expect a significant constraint, and 26% foresee no notable constraints at all.
As geopolitical factors continue to influence market dynamics, there are expectations that West Texas Intermediate oil prices will rise to $68 per barrel by the end of 2025, $72 per barrel in 2027, and $77 per barrel by 2030.
However, projections for 2027 and 2030 have been notably revised downward from previous estimates.
Currently, U.S. crude prices hover around $66 per barrel, highlighting the precarious state of the market.
In summary, the Dallas Fed survey paints a concerning picture of the oil and gas industry, as executives grapple with increasing costs, geopolitical uncertainty, and a cautious outlook on future production levels.
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