Dallas Fed Survey: Modest Oil Gains, Flat NatGas Amid US-Iran War

The Federal Reserve Bank of Dallas's latest quarterly energy survey indicates that US oil and gas activity increased in the second quarter, driven by elevated prices during the US-Iran war. The business activity index, which measures conditions for oil and gas companies in Texas, Louisiana, and New Mexico, more than doubled to 46.1, its highest level since 2022. The oil production index rose from zero to 15.0, signaling "modest" output gains, while the natural gas production index remained relatively flat at 3.7. Nearly 50% of surveyed companies reported increases in capital spending.

Survey Context and Price Expectations

The survey, conducted between June 9 and 17, captured responses from 127 companies (82 exploration and production firms, 45 oilfield services contractors) as the US and Iran negotiated a memorandum of understanding (MoU) to end the war. Some questions focused on executives' expectations for West Texas Intermediate (WTI) prices if the conflict persisted and predictions for the war's end. About a third of respondents expected US crude production to grow by 250,000 to 500,000 barrels per day in 2027 if oil held near $100 per barrel, while 31% anticipated growth of no more than 250,000 bpd.

Post-MoU Price Decline and Future Outlook

Since the MoU was announced, oil prices have dropped significantly. Front-month WTI futures fell over 3.5% to about $70.50 per barrel, well below the $88 mark seen on June 10. WTI spot prices averaged $87 per barrel during the survey period. Looking ahead, 46% of executives expected oil to be in the $80 per barrel range by the end of 2026, while 36% anticipated prices in the $70 per barrel range.

Cost Pressures and Industry Sentiment

Despite increased activity, higher costs—particularly from rising fuel prices—put pressure on service firms. Anonymous comments highlighted pain points such as higher diesel costs and tight supply of rental tools. One commenter noted "volatility and sector cost inflation, where commodity prices don't offset increased costs." Executives agreed that assessing the war's long-term impact on energy markets will take time, with one stating that the Middle East situation "will not mitigate overnight." Another commenter noted that depleted oil stockpiles could take about six months to fill, while a separate commenter predicted that a conclusion to hostilities would lead to "continued confusion" and eventually "significantly lower prices" as markets calm.