The latest energy survey by the US Federal Reserve Bank of Dallas once again reflected the direct impacts of the now 7-month conflict between the US and Iran. Oil and gas executives were queried on a range of topics that included the state of the US Strategic Petroleum Reserve (SPR), Persian Gulf crude exports, and the direction of oil prices.
On the SPR, respondents were asked to assess how much crude could be withdrawn before the reserve reaches so-called "tank bottom," the point at which oil can no longer be effectively recovered from storage caverns.
The question comes as the SPR has been steadily drawn down since the conflict began on 28 February. In the wake of the outbreak of the conflict in the Middle East, the US has tapped its SPR to help offset rising fuel prices. At the end of September, the reserve held 283.7 million bbl of crude oil, 131.7 million bbl below its pre-conflict inventory level and its lowest volume since 1982.
Answers varied widely. The largest share of respondents (31%) said the practical minimum inventory level lies between 100 million and 150 million bbl.
Another 21% placed the threshold between 50 million and 100 million bbl. Meanwhile, 19% said the limit is between 250 million and 300 million bbl, suggesting this group believes the SPR may already be approaching its operational minimum.
The ongoing drawdown was authorized by US President Donald Trump in March as part of a coordinated emergency release involving 32 member countries of the International Energy Agency. The US committed to release up to 172 million bbl under the agreement. On 29 September, the US Department of Energy (DOE) announced an exchange of 40 million bbl, the sixth allotment under the current commitment.
According to the DOE, the exchange program is structured to return a 25% premium in additional barrels to the SPR, an approach intended to return oil to the storage caverns without imposing the full cost of refilling the reserve on US taxpayers.
Gulf Exports and Prices
Oil and gas executives were also asked about the outlook for Persian Gulf crude exports, which have been heavily disrupted by Iranian attacks on tankers and the US blockade of Iranian shipping. Of the more than 100 respondents who answered the question, only 7% said they expect exports to return to prewar levels by year-end.
The largest group (28%) forecast a recovery in the second quarter of 2027, while another 26% said exports would normalize during the second half of next year. A further 21% do not expect Persian Gulf crude flows to return to prewar levels until 2028 or later.
The survey comments reflected some skepticism about a near-term recovery in Persian Gulf exports. One executive from an exploration and production company wrote "the Middle East conflict will last longer than most believe."
An executive from the oilfield services sector expressed even greater uncertainty, writing, "I am unsure if crude exports from the Persian Gulf will ever return to normal levels, and I anticipate a new, lower baseline for normal when the conflict ends."
Arguably the biggest question facing not only the oil and gas industry, but also consumers and the entire global economy, is where oil prices will end the year. Asked about the outlook for West Texas Intermediate (WTI) crude, 125 executives weighed in, with 49% predicting prices will settle between $80 and $89.99/bbl by year-end. WTI was averaging slightly under $99/bbl when the question was asked between 16 and 24 September.
Another 25% expect WTI to finish the year in the $90 to $99.99/bbl range, while 10% forecast prices will exceed $100/bbl and reach as high as $109.99/bbl. At the opposite end of the spectrum, 10% said they expect oil prices to fall below $80/bbl by year-end.
One respondent underlined the uncertainty by noting, “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.”
High Prices, High Cash Flow
While the risk of demand destruction looms over any prolonged period of elevated oil prices, the Dallas Fed pointed out that free cash flow across much of the US upstream sector has increased during the first three quarters of the year.
How companies choose to deploy that additional cash varies by size.
Among large producers, defined as those producing at least 10,000 B/D, half of respondents said they would return a portion of the windfall to shareholders or owners, likely through dividends or share repurchases in the case of publicly traded companies. The sample size was limited, however, with only 14 executives from large firms responding to the question.
Another 21% said they would funnel the additional revenue toward capital spending, while 14% indicated they would pursue acquisitions. An equal share said debt reduction would be their priority. Notably, none of the large-company respondents said they would simply retain the cash.
Among smaller producers, defined as those producing less than 10,000 B/D, responses were based on 62 executives. Capital spending was the most common answer, cited by 29% of respondents, followed by returning cash to investors and owners at 25%.
Debt reduction ranked third, with 21% saying it would be their preferred use of excess cash flow, while 13% said they would use the funds to pursue acquisitions. The results suggest smaller firms remain more focused on strengthening balance sheets and funding growth opportunities than on direct shareholder returns.
Addressing Theft
Among the other special questions included in the survey was one on oilfield theft, a long-standing but often underreported issue across the industry. Only 19 of the 125 total survey participants responded to questions on the topic, limiting the sample size.
However, of those who did share insights, the survey suggests theft is a more significant concern in the Permian Basin than in other producing regions. Nearly half (46%) of respondents with Permian-focused operations reported being impacted by theft, compared with 14% of respondents operating primarily elsewhere.
Of those who experienced theft during the past year, almost half said the severity of the problem remained unchanged from the previous 12 months, while just under one-third reported that theft had increased. The remaining 20% were evenly split between those reporting a slight decrease and those reporting a significant decrease in theft activity.
Despite the high percentage of respondents reporting theft, 84% said it had only a low impact on their operations.
The third-quarter survey included the views of 83 production companies and 42 oilfield service firms operating in Texas, northern Louisiana, and southern New Mexico. The next installment will be released on 16 December.
