Dallas Fed: Doubt, Uncertainty Continue to Slow Oil & Gas Activity

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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)

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Summary

For the fourth quarter 2025, the Dallas Fed Energy Survey sees oil executives concerned about the industry's near-term outlook if prices stay at the current levels of just under $60 per barrel. Thoughts on activity, profits and employment improved a bit over the third quarter, but are largely still negative.

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Mixed Results

The fourth-quarter Dallas Fed Energy Survey released this week shows a continued negative vibe among oil and gas executives, but slightly improved from the previous quarter. The broadest indicator, the business activity index, came in at -6.2, little changed from the third quarter. And the company outlook index improved slightly from -17.6 in the third quarter to -15.2.

The survey polled 131 energy firms, 90 of which were exploration and production (E&P) companies, and 41 were in the oilfield service business.

The Dallas Fed's Eleventh Federal Reserve District includes the entire state of Texas, 26 parishes in Louisiana and 18 counties in New Mexico.

Verbalizing Varying Views

Comments were both telling and widespread. On the E&P side, one was head-over-heels: "We are bullish on 2026."

Others, not so much. "Decreasing oil prices are making many of our firm's wells noneconomic," said one. Another added a worst-case scenario: "...if economic conditions worsen, drilling and completion activities will cease in 2026."

On the natural gas side, attitudes also diverged. From, "The increase in natural gas prices is positively affecting our business," to "Natural gas is becoming an expense to operators. Last month, we paid our gas purchaser to take our gas because prices fell below contract price...."

Service provider comments were more uniformly negative. "The activity level is still slowing," said one, while geopolitics drove another. "The prospect of a Russian-Ukrainian deal that potentially could let Russia re-enter the market is creating a negative overhang, particularly on LNG (liquefied natural gas) exports."

While the Fed included no specifics with the producer's statement about negative natural gas prices, it is likely connected to the Permian's Waha hub, where production has overwhelmed current takeaway capacity. Occasionally negative natural gas prices at this location are ironic, because at Gulf Coast LNG export facilities, demand is skyrocketing as they move to fulfill export demand to the EU and elsewhere. Prices at the Henry Hub are more palatable to producers.

Producers vs. Service Companies

For producers, the oil production index stayed negative but improved from -8.6 in the third quarter to -3.4 in the fourth. Natural gas's index rose to 0 from its previous -3.4.

Service companies generally saw a more challenging quarter, said the report. At -12.2, the equipment utilization index remained about the same as the previous period. Prices received for services dropped slightly to -30.0 compared to -26.1.

Reflecting the activity slump, employee levels and hours also fell this time. The aggregate index dropped sharply from -1.5 in the third quarter to -10.8 in the fourth. Hours shrank from -3.7 to -9.3.

Pricing the Future

All planners crave predictability, and oil and gas markets are no different. When asked to predict 2026 West Texas Intermediate prices, the average landed at $62 per barrel. But under the surface, predictions ranged from $50 to $82 per barrel.

For natural gas at the Henry Hub, the average expectation was $4.19 per million British thermal units (MMBtu) at the end of 2026.

To put these prices in perspective, WTI spot prices averaged $59.00 per barrel during the survey collection period, and Henry Hub spot prices averaged $4.84 per MMBtu.

AI to the Rescue?

Rising costs are an issue for both sectors surveyed, although there was some improvement quarter-over-quarter. Input costs for service companies declined from 34.8 to 24.4. For producers, costs for exploration and development were positive, at 5.7, but that was a drastic drop from the 22.0 of the previous quarter.

With artificial intelligence (AI) gaining traction everywhere else, the Fed decided to poll oil and gas operators on whether AI is improving efficiencies enough to improve break-even prices. The answer depends on the size of the company, they found.

At large E&Ps, most executives see some benefit for new wells in the next five years. There were 38% who saw reductions of $0.01-$1.00 per barrel, and 25% expected improvements of $1.01-$2 per barrel. An additional 13% expected $4.01-$5 per barrel improvements.

At smaller E&Ps, the majority said they thought they would see little to no benefit from AI in that time frame.

By the Numbers

• -6.2: The business activity index for the fourth quarter, which is the broadest indicator of industry outlook
• -15.2: The company outlook index, slightly improved slightly from -17.6

Key Takeaways

• This quarter's outlook is slightly improved for producers, but not so for service companies.
• Some see continued prices below $60 per barrel as a game-ender, while others plan to hang on.
• AI is seen as an efficiency and cost-reducing factor mainly by larger producers.

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