A recent survey from the Dallas Federal Reserve reveals that U.S. oil company executives anticipate a modest rise in domestic oil output at current price levels, though a murky global landscape and regulatory challenges are complicating their ability to plan for the future.
The survey, which gathered responses from 124 oil and gas companies between June 9 and June 17, found that industry activity climbed at its fastest rate in four years during the second quarter. However, that growth came alongside cost pressures that exceeded historical averages, according to Kunal Patel, a senior business economist with the Dallas Fed.
Companies providing oilfield services reported a sharp jump in input costs, driven largely by higher labor and fuel expenses, according to survey respondents.
Patel noted that most oil companies are projecting only a modest production increase at current prices. “Internally, we are expecting 2 to 3% (growth in production),” he said. U.S. West Texas Intermediate crude oil was trading near $70 per barrel on Wednesday.
Several key themes emerged from the survey responses. One executive in the exploration and production sector described rapidly shifting international geopolitics as creating a “cloudy windshield” when trying to gauge where oil prices and demand are headed. Another respondent in the same sector pointed to regulatory compliance as an increasingly significant cost burden.
The ongoing conflict involving Iran was cited as a major complicating factor. “Under the current conditions with the Iranian war, it is hard to predict the price of crude oil with any amount of certainty. My guess is that we will see higher prices for both crude oil and natural gas for several months even with a ceasefire agreement,” one exploration and production executive said.
When asked how high West Texas Intermediate prices could peak this year if the Iran conflict continues through year end, roughly two-thirds of survey respondents said prices would top out at $125 per barrel or below. About 20% of respondents projected a peak somewhere between $125 and $150 per barrel.
A number of executives expressed the view that the oil market has been fundamentally and permanently restructured, and that a sustained risk premium for oil originating from the Persian Gulf region is likely here to stay.
On the services side of the industry, one executive noted that despite stronger business activity in the second quarter, a 65% surge in diesel costs has eaten into revenue gains. A separate respondent pointed out that equipment pricing has failed to keep up with broader inflation trends.
