Dallas Fed survey shows oil and gas activity rebounds in first quarter

Activity in the oil and gas sector increased in the first quarter of 2026, according to executives responding to the Federal Reserve Bank of Dallas Energy Survey, with the data collected during the early weeks of the U.S. military campaign against Iran and resulting market disruption.

The survey period, March 11–19, coincided with escalating conflict in the Middle East, including U.S. strikes on Iranian targets and disruptions to global oil flows through the Strait of Hormuz. Industry executives cited the conflict as a key driver of price volatility and uncertainty affecting business decisions.

The survey’s business activity index, its broadest measure of conditions facing energy firms in the Eleventh District, rose from -6.2 in the fourth quarter of 2025 to 21.0 in the first quarter of 2026, indicating a return to expansion. The company outlook index also turned positive, climbing from -15.2 to 32.2. However, the outlook uncertainty index remained elevated, increasing from 43.4 to 53.7.

Several executives pointed directly to geopolitical instability as a factor shaping the outlook.

“The war in Iran is wreaking havoc in industry,” one respondent said.

Another executive highlighted the challenge of planning under volatile market conditions, describing price swings as “insane” and difficult to manage.

A third respondent noted the broader risk environment: “If the (Strait of Hormuz) doesn’t open in the next two weeks, we think you’re looking at $170 per barrel and basically guaranteed recession.”

Production levels were largely stable during the quarter. The oil production index edged up from -3.4 to 0, while the natural gas production index increased slightly from 0 to 2.3.

Cost pressures intensified. Among oilfield services firms, the input cost index rose from 24.4 to 34.9. Exploration and production (E&P) firms reported a jump in finding and development costs, with the index increasing from 5.7 to 22.3. Lease operating expenses remained elevated at 30.0.

Oilfield services companies reported improved operating conditions compared with the prior quarter. The equipment utilization index rose from -12.2 to 30.2, while the operating margin index improved from -31.7 to -7.0, indicating margins were still contracting but at a slower pace. The prices received for services index also turned positive, rising from -30.0 to 9.3.

Labor market indicators were mixed. The employment index moved from -10.8 to 0.8, suggesting relatively flat hiring, while employee hours increased, with the index rising from -9.3 to 12.8. The wages and benefits index climbed from 6.2 to 23.5, reflecting rising labor costs.

Survey respondents expect commodity prices to remain relatively stable despite near-term volatility. On average, executives forecast a West Texas Intermediate (WTI) oil price of $74 per barrel at year-end 2026, with longer-term expectations of $73 per barrel in two years and $79 per barrel in five years.

For natural gas, respondents expect Henry Hub prices to average $3.60 per MMBtu at year-end 2026, rising to $4.03 per MMBtu in two years and $4.42 per MMBtu in five years.

Additional survey data show firms require an average WTI price of about $43 per barrel to cover operating expenses for existing wells and approximately $66 per barrel to profitably drill new wells, with smaller operators generally reporting higher break-even levels.

The Dallas Fed collected responses from 135 energy firms, including 92 exploration and production companies and 43 oilfield services firms, across Texas, northern Louisiana and southern New Mexico.