Dallas Fed: Oil executives cite Iran conflict, rising costs as key industry challenges

(WO) — Oil and gas activity strengthened across the U.S. Southwest during the second quarter, but executives remain concerned that geopolitical uncertainty, rising costs and volatile policy signals could complicate planning for the remainder of 2026, according to the latest Dallas Fed Energy Survey.

The survey's business activity index climbed from 21.0 in the first quarter to 46.1 in the second quarter, its strongest reading since mid-2022, while capital spending also accelerated as nearly half of respondents reported increasing investment. Oil production posted modest gains, although natural gas production remained largely flat.

Despite stronger activity, executives pointed to the ongoing conflict involving Iran as the industry's largest source of uncertainty.

"The Hormuz uncertainty makes planning difficult," one E&P executive wrote. "Service providers are taking pricing, which is also not encouraging for increased development in 2027."

Several respondents said crude prices could remain elevated if geopolitical tensions persist, while others warned that markets have become increasingly difficult to forecast.

"Under the current conditions with the Iranian war, it is hard to predict the price of crude oil with any amount of certainty," one executive said. "My guess is that we will see higher prices for both crude oil and natural gas for several months even with a ceasefire agreement."

Another respondent noted, "Markets can price risk, but they can't price a tweet. The whiplash from diplomacy-by-social-media has become the single most unpredictable input in our planning."

While E&P companies generally reported improving outlooks, oilfield service firms described a more mixed environment. Input costs continued to climb sharply, with diesel fuel, pressure pumping and labor among the biggest challenges. The survey's oilfield services input cost index rose to 64.4 during the quarter, while supplier delivery times also lengthened.

One operator said increasing service costs are beginning to affect development decisions.

"For the first time in my career, I had a pressure pump group come back to me asking how much over the proposed rate I would pay to secure a frac date," the executive wrote.

Service companies also reported improving activity across the Permian basin but warned that inflationary pressures continue to erode margins.

"Business activity has increased in the second quarter of 2026 compared to both the prior quarter and the same period last year," one oilfield services executive said, adding that diesel fuel costs have risen approximately 65% since January.

Looking ahead, survey respondents forecast an average year-end 2026 WTI price of $81/bbl and a Henry Hub natural gas price of $3.36/MMBtu, although individual oil price forecasts ranged from $60 to $150/bbl, underscoring the unusually wide range of expectations across the industry.