The Dallas Fed Energy Survey, conducted quarterly, assesses the oil and gas sector within the Eleventh Federal Reserve District, covering Texas, northern Louisiana, and southern New Mexico. The latest report indicated a slight decline in the business activity index from 6.0 to 3.8 in the first quarter of 2024.
The company outlook index fell to -4.9, while the outlook uncertainty index increased to 43.1, the highest reading since Q1 2020. The oil production index rose to 5.6, and natural gas production also turned positive at 4.8. Additionally, the input cost index for oilfield services climbed to 30.9, and the finding and development costs index for E&P firms increased to 17.1.
Employment And Industry Uncertainty
The employment outlook remained stable, with the aggregate employment index at zero. Despite this, comments from industry respondents reflected growing uncertainty surrounding trade policies and costs, impacting planning and stability in operations. Overall, the report illustrates a complex landscape facing the energy sector in the region.
The survey’s findings point to a sector that, while not experiencing a sharp contraction, does show signs of slowing momentum. A drop in the business activity index, even a mild one, suggests a tempering of expansion across oil and gas operations. This aligns with a deteriorating company outlook, as reflected in the negative reading. When sentiment trends downward like this, it often implies reduced confidence in future profitability.
Uncertainty, however, stands out as the most striking takeaway in these numbers. The uncertainty index reaching levels unseen since early 2020 reflects deep concerns over volatility. That level of apprehension can lead to hesitation in investment and future planning. If firms are questioning pricing stability or the direction of regulation, capital-intensive decisions may be delayed or adjusted conservatively.
Oil and gas producers did, however, manage to log moderate production gains over the quarter. Even incremental increases in output point to resilience, though not necessarily expansion. Rising extraction without a corresponding surge in optimism suggests that firms are maintaining production schedules rather than aggressively scaling up. This is where rising costs introduce another layer of pressure. The increase in input costs means that margins face strain, particularly if commodity prices do not provide enough cushion.
Labour Trends And Market Conditions
Labour figures show neither growth nor contraction in employment, indicating a cautious stance among firms. While stable job numbers provide reassurance in the short term, they also suggest that firms are not hiring aggressively despite continued production. This aligns with broader uncertainty regarding trade policies. If regulatory adjustments or international trade changes remain unpredictable, businesses may favour maintaining current workforce levels over committing to expansion.
Taken together, these data points illustrate an energy sector weighing its next steps carefully. Some areas maintain momentum, but rising costs, policy concerns, and an uncertain outlook make aggressive expansion a less attractive option. The weeks ahead will require careful monitoring of price trends, regulatory developments, and cost fluctuations.
