Energy-Sector Mood Sours, Dallas Fed Finds

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--A majority of the executives surveyed by the Federal Reserve Bank of Dallas said they expected to see production declines amid a lower-for-longer price outlook.

West Texas Intermediate (WTI), the U.S. benchmark for the price of crude oil, was trading at around $67 per barrel early Thursday, ahead of the long holiday weekend. Prices have enjoyed something of a premium lately, riding geopolitical risk during the Israeli-Iranian conflict and market optimism over a major U.S. spending bill.

The federal Energy Department's Energy Information Administration (EIA), however, estimates WTI will average $62.33 per barrel this year and fall to $55.58 by 2026. Should that forecast hold, drillers may be facing significant headwinds.

The EIA in its Short-Term Market Report for June said it expected total U.S. crude oil production to drop from an all-time high of 13.5 million barrels per day (BBL/d) in the second quarter to 13.3 million BBL/d by the fourth quarter due to lower oil prices and a decline in upstream activity.

Even with the slowdown in U.S. production, however, the EIA is expecting a market glut to persist into 2026, with inventories swelling by 800,000 BBL/d this year and another 600,000 BBL/d next year due largely to lackluster demand.

An early-year survey from the Federal Reserve Bank of Dallas found frustration with the return of Donald Trump to the U.S. presidency. A protectionist economic policy has muffled growth, stoking concern about those in the domestic energy sector.

Price movements even caught the recent attention of the World Bank, which said oil-price volatility is the greatest it's ever been in 50 years. Prior to the two-week conflict in the Middle East, the World Bank said global commodity prices were below the five-year average to 2019, the year before the COVID-19 pandemic, when adjusted for inflation.

A majority of those surveyed by the Dallas Fed for its latest survey, 61%, said they expected a slight decline in production should WTI remain near the $60 mark. It was early June the last time WTI was that low.

"Political turmoil is not beneficial," one respondent said. "We are dealing with warring bureaucracies, with each trying to exert their specific agendas and effectively prevent progress."

Survey respondents said they believed WTI would be around $67 per barrel by year's end.

In a separate report, the Dallas Fed found the jobless rate in the Houston area increased month-on-month to May, though growth was apparent in the oil and gas sector. Elsewhere, upstream services firms like Baker Hughes Company (Houston, Texas) reported declining conditions across the board.

There was some good news, meanwhile, on the impact of tariffs. U.S. steel producers don't make much of the materials necessary for pipelines, complicating midstream developments due to the import tax, but few respondents expected a major hit from tariffs. On drilling and completions, about half the respondents said they either expected costs to increase by around 5%, or not at all.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).