Sentiment sours in the US oil patch amid low crude prices

Howdy ya’ll from Texas, and welcome to Energy Source.

Today, I’ll be focusing on why US oil producers, largely those here in Texas, refuse to turn on the spigots and drill more oil despite the recent price surge touched off by the Middle East conflict. The Lone Star state is critical in the energy world because its largest field, the Permian Basin in West Texas, accounts for 51 per cent of total American oil output. 

How Texas goes, so goes the US.

Before I get into that, I’d like to alert you to a fascinating episode of the Financial Times’ Behind the Money podcast delving into how oil traders rightly called the Middle Eastern escalation shortlived and sold when crude prices soared. 

The FT’s energy editor, Malcolm Moore, does a turn this week on the show explaining how oil traders used social media and open-source intelligence to discover a global war was not as imminent as everyone feared. The episode is here.

Thanks for reading — Kristina.

Low crude prices hammer US oil production and business sentiment

The recent fighting between Israel and Iran did nothing to lift the sour mood here in Texas. While oil prices for West Texas Intermediate, the US benchmark, climbed to $75.14 a barrel, they dropped less than a week later right back to where they started in the mid $60s. 

Crude prices have plunged more than 15 per cent from a high of $80.04 at the start of the year thanks to Donald Trump’s tariffs, a slowdown in global economic growth and increased production from Opec+.

Those lower prices are translating into tougher business conditions for energy companies, according to the Federal Reserve Bank of Dallas’s quarterly energy survey released yesterday. The business activity index, a broad measure of conditions in the bank’s coverage area, turned negative, declining from 3.8 in the first quarter to -8.1 in the second.

“It’s hard to imagine how much worse policies and DC rhetoric could have been for US [exploration and production] companies,” one respondent wrote. “We were promised by the administration a better environment for producers but were delivered a world that has benefited OPEC to the detriment of our domestic industry.”

Uncertainty is also growing among energy executives, according to the survey. The uncertainty index increased four points to 47.1 for the second quarter.

The Dallas Fed’s survey, conducted June 18-26, measures the sentiments of energy companies located in Texas, southern New Mexico and northern Louisiana. The bank’s assessment region is home to four of the country’s major oil and natural gas production areas, which altogether pump more crude than many of the world’s largest oil producers.

During the second quarter, oil and gas production declined slightly. The oil production index slipped to -8.9, down from 5.6 in the first quarter. The natural gas index also turned negative, dropping from 4.8 to -4.5. 

“The liberation day chaos and tariff antics have harmed the domestic energy industry,” an executive wrote. “Drill, baby, drill will not happen with this level of volatility. Companies will continue to lay down rigs and [frac] spreads.”

Frac spreads are the number of crews performing active hydraulic fracking of shale.

This year’s slumping crude prices have translated into fewer drilling rigs. Nearly half of energy executives said they expected to drill fewer new wells in 2025 than they had planned at the beginning of the year. Among the respondents, 26 per cent said they would cut rigs significantly, while 21 per cent reported they would decrease them slightly.

If prices remain at $60 per barrel over the next 12 months, 61 per cent of executives responded that their companies’ oil production would decrease slightly. About 24 per cent said production would remain close to current levels.

But their plans would markedly change if crude prices plummet to $50 per barrel and stay there for the next 12 months. About 46 per cent of executives said production at their companies would decrease significantly. About 42 per cent said production would drop slightly.

“There is constant noise coming from the administration saying $50-per-barrel oil is the target,” an energy executive wrote. “Everyone should understand that $50 is not a sustainable price for oil. It needs to be mid $60s.”

Respondents expect on average $68-per-barrel WTI and a natural gas price of $3.66 per million British thermal units on the benchmark Henry Hub at the end of the year. (Kristina Shevory)

Power Points

• A series of mysterious limpet mine attacks on oil tankers has shaken the shipping world.

• Trump’s flagship spending plan cuts support for US production of critical minerals, despite intensifying competition with China.

• National Grid bosses claim they were “not made aware” of problems at a London electricity substation years before a fire in March that led to the closure of Heathrow airport for 24 hours.

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Kristina Shevory, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.