U.S. Oil and Gas Production Climbs Despite Extreme Oil Price Volatility

U.S. oil and gas production climbed during the third quarter, according to surveys of energy companies located in Texas, southern New Mexico and northern Louisiana. Crude oil prices fluctuated notably, trading between $67 and $107 per barrel over a three-month span, which has left producers uncertain about future price trends. West Texas Intermediate (WTI) averaged $86 per barrel during the quarter, but saw a low of $67 in early July, followed by a surge to $107 mid-September due to the Iran war impacting Middle Eastern production and shipping.

Respondents to the Dallas Fed survey anticipate WTI to average $88 per barrel for the year 2026, with forecasts ranging from $70 to $126. Similarly, they predict Henry Hub natural gas to conclude the year at an average of $3.29 per million British thermal units. An exploration and production executive commented, "We are getting to the point in this global conflict and its effect on commodity markets that it is tough to predict what the remainder of 2026 and also 2027 will potentially look like."

Oil production had already begun increasing in the second quarter, with the Dallas Fed's oil production index climbing from 0.0 in the first quarter to 15.0. Q2 gas production index was 3.7 and relatively unchanged. Capital spending also saw a boost, with the index rising from 21.2 to 40.9 and 49% of firms reporting increased spending.

The latest survey indicates that both oil and gas production continued to rise in the third quarter across the surveyed region, including the Permian Basin, Eagle Ford, and Haynesville. This represents two consecutive quarters of production growth for the industry. However, the outlook for capital expenditures beyond the current increase remains weak. The index measuring expected capital expenditures for the following year stood at zero in the second quarter, despite current spending continuing to rise.

U.S. inventories add another layer of complexity to the situation. Commercial crude oil stocks increased by 900,000 barrels last week to reach 427.3 million barrels, according to U.S. Energy Information Administration (EIA) data. Distillate inventories, on the other hand, fell by 2.3 million barrels, leaving stocks 14% below their five-year average for this time of year.