The latest Dallas Federal Reserve Energy Survey indicates significant deterioration in oil and gas sector conditions across Texas, northern Louisiana, and southern New Mexico during the third quarter. The business activity index registered -6.5, marking the second straight quarter of contraction, while forward-looking indicators suggest continued weakness ahead.

Executive sentiment has turned increasingly pessimistic, with the company outlook index falling sharply to -17.6 from -6.4 in the previous quarter. More than 44% of surveyed firms reported elevated uncertainty levels, citing policy volatility and regulatory unpredictability as primary concerns affecting capital allocation decisions. Finding and development costs doubled for exploration and production companies, while lease operating expenses surged across the sector.

Tariff implementation has created substantial cost pressures, particularly on steel and aluminum imports essential for drilling operations. Many operators report that higher costs for tubular steel, heavy materials, and imported components are rendering previously economic wells unviable. Oilfield services companies continue experiencing negative margins, with capital expenditure plans being scaled back significantly as the capex index dropped to -11.6.

Price expectations remain subdued, with survey respondents forecasting West Texas Intermediate crude at $63 per barrel for year-end 2025, rising modestly to $69 in two years and $77 in five years. These price levels fall short of breakeven requirements for many shale operators, contributing to reduced drilling activity and industry consolidation as major integrated companies acquire struggling independent producers.