Oil and gas activity rises amid elevated uncertainty

MICHAEL PLANTE and KUNAL PATEL, Dallas Federal Reserve Bank 

Activity in the oil and gas sector increased in first-quarter 2026, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index, the survey’s broadest measure of the conditions that energy firms face in the Eleventh District, turned positive (indicating expansion), increasing from -6.2 in fourth-quarter 2025 to 21.0 in first-quarter 2026, Fig. 1.  

Fig. 1. Business activity index.

OVERVIEW 

The Dallas Fed conducts the Dallas Fed Energy Survey quarterly to obtain a timely assessment of energy activity among oil and gas firms located or headquartered in the Eleventh District.  

Methodology. The Dallas Fed conducts the Dallas Fed Energy Survey quarterly to obtain a timely assessment of energy activity among oil and gas firms located or headquartered in the Eleventh District.  

The Eleventh District encompasses Texas, northern Louisiana and southern New Mexico. Firms are asked whether business activity, employment, capital expenditures and other indicators increased, decreased or remained unchanged compared with the prior quarter and with the same quarter a year ago. Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase.  

When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the previous quarter. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the previous quarter.

Fig. 2. Long-term expectations on oil price.

Data were collected March 11–19, and 135 energy firms responded. Of the respondents, 92 were exploration and production firms and 43 were oilfield services firms.

OIL AND GAS PRICES/SUPPLY & DEMAND 

On average, respondents expected a West Texas Intermediate (WTI) oil price of $74/bbl at year-end 2026; responses ranged from $50/bbl to $135/bbl, Table 1. When asked about longer-term expectations, respondents on average said they expect a WTI oil price of $73/bbl two years from now and $79/bbl five years from now, Fig. 2. 

Survey participants foresaw a Henry Hub natural gas price of $3.60/MMBtu at year-end 2026, Table 2. When asked about longer-term expectations, respondents on average said they anticipate a Henry Hub gas price of $4.03/MMBtu two years from now and $4.42/MMBtu five years from now, Fig. 3. For reference, WTI spot prices averaged $94.65/bbl during the survey collection period, and Henry Hub spot prices averaged $3.16/MMBtu.

Fig. 3. Long-term expectations on gas price.

FINANCIAL/COSTS OUTLOOK 

The company outlook index turned positive, advancing from -15.2 in the fourth quarter to 32.2 in the first quarter, suggesting improving outlooks among firms. Meanwhile, the outlook uncertainty index remained elevated and increased from 43.4 to 53.7. 

Costs increased at a slightly faster pace when compared with the prior quarter. The input cost index for oilfield services firms increased from 24.4 to 34.9. Among exploration and production firms, the finding and development costs index jumped from 5.7 to 22.3. Meanwhile, the lease operating expenses index was relatively unchanged at 30.0. 

Fig. 4. Number of publicly listed independent E&P firms in the U.S. with market capitalizations of over $1 billion that will remain by the end of this decade.

One special question said to executives, “There remain about 30 publicly listed independent exploration and production (E&P) firms in the U.S. with market capitalizations of over $1 billion each. How many such firms do you think will remain by the end of this decade?” 

The most selected response was “19–24” (47 percent of respondents), followed by “13–18” (26 percent) and “≥25” (17 percent), Fig. 4. A smaller percentage selected “7–12” and “0–6.”  

Another special question asked executives, “Do you expect upstream firms will be able to increase oil recovery rates from U.S. shale wells over the next 10 years? How about for natural gas?” 

Firms generally expect recovery rates to increase over the next 10 years, Fig. 5. For both crude oil and natural gas, the most selected response was “yes, slightly.” Firms were slightly more optimistic about improving recovery rates for natural gas than crude oil.

Fig. 5. Expectations for increasing oil recovery rates from U.S. shale wells over the next 10 years.

DRILLING/COMPLETIONS 

One question asked E&P executives, “In the top two areas in which your firm is active, what WTI oil price does your firm need to profitably drill a new well?” 

For the entire sample, firms require $66/bbl on average to profitably drill, higher than the $65/bbl price when this question was asked in last year’s first-quarter survey, Fig. 6. Across regions, average break-even prices to profitably drill range from $62/bbl to $70/bbl. Break-even prices in the Permian basin average $67/bbl, up from $65/bbl last year. 

Large firms (with crude oil production of 10,000 bpd or more as of fourth-quarter 2025) require a $59/bbl price to profitably drill, based on the average of company responses. That compares with $68/bbl for small firms (fewer than 10,000 bpd). The latest historical data can be found on the break-even page.

Fig. 6. What WTI oil price is needed to profitably drill a new well?

Another special question asked, “In light of the recent increase in oil prices, how has the number of wells your firm expects to drill in 2026 changed since the start of the year?” 

This question was posed only to E&P executives, who each said their firms drilled or completed horizontal wells in the past two years. Half of the executives surveyed said the number of wells their firms expect to drill in 2026 has not changed since the start of the year, Fig. 7. Twenty-six percent said they expect the number of wells they drill to “increase slightly,” and 21% said it would “increase significantly.” Conversely, 3% said drilling expectations “decreased significantly.” 

Executives at small E&P firms were more likely than their counterparts at large firms to indicate that they increased the number of wells they plan to drill since the beginning of the year. In the U.S., small E&P firms are greater in number, but large E&P firms represent the majority of production (more than 80%).  

Fig. 7. How has the number of wells a firm expects to drill in 2026 changed since the start of the year?

OIL AND GAS PRODUCTION 

Oil and gas production was little changed in the first quarter, according to executives at exploration and production firms. The oil production index increased slightly from -3.4 to 0. Similarly, the natural gas production index edged higher from 0 to 2.3. 

A special question asked, “In the top two areas in which your firm is active, what West Texas Intermediate (WTI) oil price does your firm need to cover operating expenses for existing wells?” 

The average price across the entire sample is approximately $43/bbl, up from $41/bbl last year, Fig. 8. Across regions, the average price necessary to cover operating expenses ranges from $34/bbl to $47/bbl. All respondents can cover operating expenses for existing wells at current prices. 

Large firms (with crude oil production of 10,000 bpd or more as of fourth-quarter 2025) require prices of $32/bbl to cover operating expenses for existing wells, based on the average of company responses. That compares with $46/bbl for small firms (fewer than 10,000 bpd). 

Fig. 8. What WTI oil price does your firm need to cover operating expenses for existing wells?”

Another special question asked respondents, “In which basins or regions do you expect U.S. oil production to increase from December 2025 to December 2026? (Check all that apply.)” 

Respondents could choose more than one answer for this special question. The most selected response was "Permian" (82% percent of respondents), with “Eagle Ford” and “Utica (Ohio)” each selected by 29% of respondents, Fig. 9.  

Yet another special question asked, “How have your expectations changed for Venezuelan oil production over the next 24 months, when compared with your expectations three months ago?” 

Fig. 9. In which basins or regions will U.S. oil production increase?

The largest group, 55% of executives, expect slightly more Venezuelan oil production over the next 24 months, when compared to expectations three months ago, Fig. 10. Twenty-nine percent of executives have not changed their expectations, while 12% expect significantly more production. A smaller percentage expect either slightly less or significantly less production from Venezuela. 

OFS SECTOR 

Oilfield services firms reported modest improvement in nearly all indicators, a shift from the prior quarter. The equipment utilization index for oilfield services firms turned positive, jumping from -12.2 to 30.2. The operating margin index remained negative but increased from -31.7 to -7.0, indicating margins compressed at a slower rate. Meanwhile, the prices received for services index rose sharply from -30.0 to 9.3. 

Fig. 10. How have your expectations changed for Venezuelan oil production?

EMPLOYMENT TRENDS 

Overall, demand for employees was unchanged, although those on the job tended to work more hours than in the previous quarter. The aggregate employment index increased from 

-10.8 in the fourth quarter to 0.8 in the first. Additionally, the aggregate employee hours index jumped from -9.3 to 12.8. Meanwhile, the aggregate wages and benefits index increased from 6.2 to 23.5. 

(Editor’s note:  We have chosen to skip the “comments from survey respondents” from the March version of this survey, in favor of the comments from the April survey update.) 

APRIL SURVEY UPDATE: ADDITIONAL SPECIAL QUESTIONS 

In response to recent developments in the global oil market, the Dallas Fed conducted a follow-up to its first-quarter survey that published March 25. Data were collected April 15–20; 120 oil and gas firms responded. Of the respondents, 78 were exploration and production firms, and 42 were oilfield services firms. 

One special question in April asked, “By when do you expect traffic through the Strait of Hormuz to return to normal levels? 

Fig. 11. When do you expect traffic through the Strait of Hormuz to return to normal levels?

Executives expect traffic through the Strait of Hormuz to eventually normalize, although most believe it will take time. Of the executives surveyed, 20% expect traffic through the Strait of Hormuz to return to normal levels by May 2026, 39% expect recovery by August 2026, 26% by November 2026, and 14% later than that, Fig. 11. 

A second special question asked, “Once traffic in the Strait of Hormuz returns to normal levels, how likely is it that geopolitical events will disrupt it again within the next five years? 

A majority of executives say future disruptions to the Strait of Hormuz are likely, Fig. 12. Of respondents, 48% say it is “very likely” that geopolitical events will disrupt traffic again within the next five years, while 38% view it as “somewhat likely.” Only 14% of executives consider future disruptions “unlikely.” 

Fig. 12. How likely is it that geopolitical events will disrupt the Strait of Hormuz again within the next five years?

A third April question asked, “By how much do you expect the cost of shipping oil from the Persian Gulf (insurance, freight costs, tolls) to increase in dollars per barrel once the military conflict ends, compared to before the war? 

Most executives expect shipping costs from the Persian Gulf to increase after the military conflict ends, Fig. 13. The most selected response in dollars per barrel was “more than $2 but not more than $4” (36% of respondents). 

A fourth special question asked, “By how much do you expect U.S. oil production to increase in response to the Iran war in 2026 and 2027?

Fig. 13. How much do you expect the cost of shipping oil from the Persian Gulf (insurance, freight costs, tolls) to increase?

Most executives expect U.S. oil production to increase in response to the Iran war, Fig. 14. The most selected response for 2026 was “more than 0 but not more than 0.25 mb/d,” selected by 43% of the respondents. The most selected response for 2027 was “more than 0.25 but not more than 0.50 mb/d,” selected by 32% of the respondents. 

The fifth April question asked, “What share of shut-in production in the Persian Gulf do you expect will return eventually?” 

About two-thirds of respondents think at least 90% of shut-in production in the Persian Gulf will return to market eventually, Fig. 15. 

The sixth and final special question asked, “How do you expect the number of employees at your company to change from December 2025 to December 2026? 

The largest group, 59 % of executives, expect employment at their firms to remain the same from December 2025 to December 2026, Fig. 16. About a third of respondents expect employment to increase to some degree, and only 8% expect a decline. Whereas the most-selected response among E&P firms was for employment to “remain the same” in 2026, the most-selected response of support service firms was for employment to “increase slightly” in 2026.

Fig. 14. How much do you expect U.S. oil production to increase in response to the Iran war in 2026 and 2027?

COMMENTS FROM SURVEY UPDATE RESPONDENTS 

Survey participants are given the opportunity to submit comments on any special questions or on any current issues that may be affecting their businesses. Some comments have been edited for grammar and clarity.

EXPLORATION AND PRODUCTION (E&P) FIRMS 

• Extreme oil price volatility is leaving both small and large E&Ps unsure of whether to increase capital spending and activity. Even after nearly a month of oil above $90/bbl, rig counts declined, signaling little confidence that prices will hold. Closing the supply gap from the Iran conflict will require greater certainty and higher 2027 future prices to incentivize additional rig and frac deployments. This is also keeping supply chain inflation in the industry under check.
  

  Fig. 15. What share of shut-in production in the Persian Gulf do you expect will return eventually?”
• With all of the chaos, predicting anything in the energy sector is very difficult. 
• There are way too many variables for these predictions to have real value. 
• The Iranian conflict has become too much about energy. This is a knock-off effect. If the administration feels that we need to prolong the conflict, it needs to better articulate the long-term strategic goal and the risk of inaction. This cannot be solely about barrels. 
• The difference between the gyration of paper market oil prices versus what seems to be substantially higher physical prices sends conflicting signals to operators, who cannot plan rigs and capital budgets when prices swing wildly, based on tweets. Our hypothesis is [that] the paper market is being manipulated. This will likely lead to an even worse supply and demand imbalance and higher prices in the medium term (next 12 months).
• As we know, there is no way to predict the outcome of the war with Iran. The effect it will have on domestic oil production depends on how long the strait remains closed, and that is how long Iran can control the movement through the strait.
  

  Fig. 16. How do you expect the number of employees at your company to change from December 2025 to December 2026?
• Shut-in production in the Persian Gulf will eventually rise above pre-war levels, but it will take time. This is not a quick return to production. 
• The price of oil will fall back to the $65/bbl level very quickly, once this conflict settles down. 
• It’s too early to tell for most things. The administration’s comment about an “Iran terror premium” existing for decades with crude oil pricing is laughable. But now the administration has created one where it did not exist before. 
• The geopolitical events are too chaotic to provide any degree of certainty to commodity pricing or unimpeded transportation through the Strait of Hormuz at this time. I am of the opinion that the costs related to shipping oil from the Persian Gulf will increase, but by how much I am not sure. I am not optimistic that the Iran conflict will cease in the near future. Locating or removing (or rendering unusable) the uranium materials and processing facilities will continue to be a top priority of this administration. 
• All answers depend on how the conflict ends. Does it end with Iran hard-liners in control, or will there be a move toward democracy? I’m betting the new regime will be a repeat of the old one, unless things change drastically in where we are headed at present. 
• My career has had me visiting Tehran and working in Qatar, Kuwait, Iraq and Syria over the years. The political issues between cultures are entrenched and solutions to the current disruptions will not occur overnight. These are interesting times. Answering these questions is not easy. 
• Disruption of the oil markets due to the Iran war? The reality of those markets being unbalanced, due to disruptions of oil deliveries, was an overreaction. At the same time, the uncertainty of the Gulf states and Iran is a reality. I believe the fear of oil disruptions will persist for some time. 
• We do not hedge our oil production. There are domestic basins (like Magellan East Houston on the Texas Gulf Coast) that are seeing premiums relative to pre-war, and that is also affecting our revenue. 
• Supply and demand per market are ultimately dependent on every market's secure deliverability assessment for pricing and preference. That will, in every market that is dependent on export by sea now, put a highly variable pricing and preference component in each of such market's supply and demand pricing components, and that variable will logically even add additional pricing components that have not been of material or obvious influence or consideration until recently. 
• The recent events are temporary. 
• Some of the questions are open-ended as to time factor. A Republican president elected in 2028 with control of both houses of Congress is a big difference in foreign affairs versus a Democrat president and one of the houses of Congress being held by Democrats. 

OIL AND GAS SUPPORT SERVICES FIRMS 

• Middle East oil contribution as a percentage will decrease and will be offset by U.S./Latin America/Africa, as the risk premium to operate in Middle East will increase, hence capital should flow to other geographies 

• Uncertainty is problematic in the oil and gas business, and this administration is the definition of uncertainty. I expect to see material demand destruction come over the longer term, as many societies will come to see hydrocarbons as no longer a certainty in a future of increased energy requirement. 

• The long-term consequences of this war were not fully considered. The disruption this will cause to energy markets and other macroeconomic measures will be significant. The unpredictable nature of the current administration makes business modeling nearly impossible. 

• In response to the roughly 45 days of West Texas Intermediate over $75/bbl, we are hearing increased talk of smaller operators adding rigs. We are also seeing larger independent operators move up drilling schedules. We don't have a clear idea of what Persian Gulf production levels will look like when the strait re-opens, but we don't expect an immediate ramp-up to previous (to closure) levels on account of the infrastructure damage during the bombing campaign. We are roughly estimating that when the strait reopens, we'll be working with a $70-$80/bbl floor for WTI in the near-future. 

• Within the oilfield services sector, the low-cost environment is starting to put companies out. We are having founders approach us to take them over. The balance sheet is drained, and the pathway to make money for immature firms with low capital reserves is difficult. Manpower and machinery are depleting within the industry. Realized prices will have to rise significantly with longer-term positive prospects for widespread investment to pick up. 

• The disconnect between spot prices and midstream feasibility is widening. Extended lead times for pipeline products and significantly increased transportation costs, both exacerbated by the shipping crisis in Hormuz, have turned our 12-month projections into logistical jigsaw puzzles. The extended shipping blocks are effectively an unlegislated tariff on our infrastructure, forcing us to choose between paying a premium for domestic supply or waiting indefinitely for increasingly expensive global shipments. 

MICHAEL PLANTE joined the Federal Reserve Bank of Dallas in July 2010 and is senior research economist and advisor. Recent research has focused on such topics as the economic impact of the U.S. shale oil boom, structural changes in oil price differentials, and macroeconomic uncertainty. He also has been the project manager of the Dallas Fed Energy Survey since its inception in 2016. Mr. Plante received his PhD in economics from Indiana University in August 2009. 

KUNAL PATEL is a senior business economist at the Federal Reserve Bank of Dallas. He analyzes and investigates developments and topics in the oil and gas sector. Mr. Patel is also heavily involved with production of the Dallas Fed Energy Survey. Before joining the Dallas Fed in 2017, he worked in a variety of energy-related positions at Luminant, McKinsey and Co., and Bank of America Merrill Lynch. Mr. Patel received a BBA degree from the Business Honors Program at the University of Texas at Austin and an MBA degree in finance from the University of Texas at Dallas.