Oil & Gas Executives Project Stronger WTI Prices and Shifting Market Dynamics
The latest Dallas Fed Energy Survey reveals a robust shift in sentiment among oil and gas executives regarding future West Texas Intermediate (WTI) crude oil prices. Industry leaders are signaling an expectation of sustained higher prices, while also navigating rising operational costs and a nuanced approach to drilling expansion. This quarterly deep dive into the energy sector’s pulse offers crucial insights for investors tracking the trajectory of the oil and gas markets.
Industry Executives Project Future WTI Pricing
Executives from 116 prominent oil and gas firms have offered their WTI price forecasts, painting a picture of optimism for the coming years. For the six-month horizon, the mean expectation stands at $78 per barrel. Looking further out, the consensus for one and two years settles at $73 per barrel, demonstrating a belief in stable, elevated pricing. The five-year outlook sees a slight uptick to $79 per barrel, suggesting long-term confidence in crude valuations.
This sentiment marks a significant upward revision compared to just the previous quarter. In the fourth quarter 2025 Dallas Fed Energy Survey, the same number of firms projected a WTI price of $59 per barrel for six months, $63 for one year, and $69 for two years. The five-year forecast in that survey was $75 per barrel. The latest figures underscore a notable strengthening of price expectations, reflecting evolving market fundamentals and geopolitical factors.
Focusing specifically on the end of 2026, 131 oil and gas executives provided an average WTI price forecast of $74.04 per barrel. This forecast exhibited a broad range, from a low of $50 per barrel to a high of $135 per barrel, illustrating varying degrees of optimism and risk assessment within the industry. During the survey period, the average daily spot price for WTI crude was a robust $94.65 per barrel, indicating current market strength above the longer-term expectations.
To put this into perspective, the fourth quarter 2025 survey, which first posed the end-of-2026 price question, saw 128 executives project a lower average of $62.41 per barrel. That prior survey’s range was also narrower, spanning from $50 to $82.30 per barrel, with an average daily spot price of $59.00 per barrel. The current survey’s substantially higher end-of-year average and expanded high-end forecast clearly reflect a more bullish outlook for crude prices.
Breakeven Economics: Operating Costs and New Well Profitability
Understanding the financial thresholds for oil and gas operations is critical for investors. The survey meticulously detailed the WTI prices required for exploration and production (E&P) firms to cover existing well operating expenses and profitably drill new wells. For existing operations, 80 E&P companies reported an average WTI price of approximately $43 per barrel needed to cover operating expenses, a slight increase from $41 per barrel last year. Notably, all respondents confirmed their ability to cover these expenses at current market prices.
Regional variations exist, with the average price to cover operating expenses ranging from $34 to $47 per barrel across different producing areas. A key distinction emerges between firm sizes: large companies, defined as those producing 10,000 barrels per day or more as of Q4 2025, require a WTI price of just $32 per barrel to sustain existing wells. In contrast, smaller firms, producing less than 10,000 barrels per day, need a higher $46 per barrel to cover their operational outlays. This highlights the inherent cost efficiencies enjoyed by larger-scale operators.
The profitability threshold for drilling new wells also saw an uptick. On average, 80 E&P firms reported needing $66 per barrel to profitably spud a new well, climbing from $65 per barrel in the first-quarter survey of the prior year. Regional breakeven prices for new drilling span from $62 to $70 per barrel, reflecting diverse geological and infrastructure costs. The prolific Permian Basin, a bellwether for U.S. shale, now requires $67 per barrel on average for profitable new drilling, up from $65 last year.
Similar to operating expenses, a significant divergence in new well breakevens exists between firm sizes. Large E&P firms demand a WTI price of $59 per barrel to profitably drill, a stark contrast to the $68 per barrel required by their smaller counterparts. This cost advantage for larger players suggests they can maintain profitability and investment even at lower price points, potentially influencing sector consolidation and strategic positioning.
Drilling Activity Outlook: Caution Amidst Rising Prices
Despite the improved price outlook, the survey indicates a measured response in drilling activity. When asked how their 2026 drilling plans have changed since the start of the year in light of recent oil price increases, 34 E&P executives offered insights. A full half of these firms reported no change in their expected number of wells to be drilled in 2026. This suggests a cautious approach, perhaps prioritizing capital discipline or observing market stability before committing to aggressive expansion.
However, a significant portion does anticipate an increase. Twenty-six percent of executives foresee a “slight increase” in drilling activity, while 21 percent expect a “significant increase.” Only a small fraction, three percent, reported a “significant decrease.” Interestingly, smaller E&P firms appear more inclined to boost their drilling programs compared to their larger counterparts. While smaller E&P firms are more numerous, larger firms collectively account for over 80 percent of total U.S. crude oil production. This dynamic implies that while the industry is seeing some drilling expansion, it might not translate into a massive surge in overall production, especially if larger producers maintain a more conservative stance.
Energy Sector Momentum: Business Activity and Costs on the Rise
The broader oil and gas sector demonstrated renewed vigor in the first quarter of 2026. The business activity index, a comprehensive measure of operating conditions, surged from -6.2 in Q4 2025 to a robust 21.0 in Q1 2026, signaling a definitive expansion. The company outlook index mirrored this positive shift, climbing from -15.2 to an impressive 32.2, indicating a substantial improvement in executive confidence regarding future prospects. However, the outlook uncertainty index remained elevated and even increased from 43.4 to 53.7, suggesting that while the mood is better, executives are still wary of potential headwinds or market volatility.
Oil and natural gas production levels saw minimal changes during the first quarter. The oil production index moved from -3.4 to 0, indicating stable output. Similarly, the natural gas production index nudged higher from 0 to 2.3, reflecting a slight uptick. This suggests that while business activity and sentiment are improving, production growth is not yet accelerating rapidly, which could further support commodity prices.
On the cost front, the pace of increases accelerated during the quarter. The input cost index for oilfield services firms rose from 24.4 to 34.9, signaling faster cost inflation for vital services. For E&P firms, the finding and development costs index jumped significantly from 5.7 to 22.3, underscoring the rising expense of bringing new resources online. Lease operating expenses, however, remained relatively stable at an index of 30.0, suggesting some control over day-to-day operational costs for existing wells.
Oilfield Services See Rebound in Q1
The oilfield services sector, often a leading indicator of upstream activity, reported a notable improvement across nearly all metrics, reversing the trend from the previous quarter. The equipment utilization index, a critical measure of demand for drilling rigs and other machinery, dramatically shifted from -12.2 to a positive 30.2, indicating increased activity and demand for services.
While the operating margin index for oilfield services firms remained in negative territory, it improved substantially, moving from -31.7 to -7.0. This suggests that while margins are still under pressure, they are compressing at a much slower rate, signaling a healthier pricing environment. Concurrently, the prices received for services index saw a sharp rebound from -30.0 to 9.3, indicating that service providers are finally able to command better rates for their offerings, which is a positive sign for investors in this segment.
Employment Trends and Wages in the Energy Workforce
The overall demand for employees in the energy sector remained largely unchanged, with the aggregate employment index moving from -10.8 in Q4 2025 to 0.8 in Q1 2026. This suggests stability rather than significant hiring surges. However, those employed within the sector worked more hours than in the preceding quarter, as evidenced by the aggregate employee hours index jumping from -9.3 to 12.8. This indicates existing workforces are being utilized more intensively as activity picks up.
Mirroring the broader economic trend of rising labor costs, the aggregate wages and benefits index increased from 6.2 to 23.5. This signifies continued upward pressure on compensation for energy sector workers, a factor that will contribute to overall operational costs for firms. These employment dynamics reflect a sector that is stabilizing its workforce while demanding more from its existing employees and incurring higher labor expenses.
