Oil and gas activity across Texas, northern Louisiana, and southern New Mexico moved back into expansion territory in the first quarter for 2026. The Dallas Fed Energy Survey showed the Business Activity Index rising to 21.0 after contracting in the prior quarter, signaling a return to growth across the sector. The index reflects the net share of firms reporting an increase in activity versus those reporting a decrease, with positive readings indicating expansion.
The rebound marks a clear shift from the softness seen late last year, but it does not yet reflect a meaningful change in supply. Instead, it points to a sector responding to stronger pricing conditions while remaining cautious on longer-term commitments.
Drilling plans suggest that caution is still firmly in place. When asked how 2026 drilling expectations have changed since the start of the year, half of executives said plans remain unchanged, while the remainder skewed modestly higher. Smaller operators are driving most of the increase, while larger firms, which account for the majority of US production, are largely holding steady.
That divergence highlights a familiar dynamic. Smaller producers tend to respond more quickly to price, while larger operators remain disciplined and less willing to accelerate drilling without greater confidence in longer-term market conditions. The result is incremental activity at the margin, but not the kind of broad-based increase needed to materially shift supply.
Survey commentary reinforces this cautious stance. Many respondents pointed to the Iran conflict and disruptions tied to the Strait of Hormuz as key drivers of recent price strength, but emphasized that these conditions may prove temporary. If higher prices are viewed as geopolitically driven rather than structural, the incentive to accelerate drilling remains limited.
Price expectations align with that view. On average, producers expect WTI to average roughly $74 per barrel at year-end 2026, with longer-term expectations remaining relatively flat in the $70s. Even with prices trading well above that range during the survey period, respondents are not extrapolating current strength forward. Instead, expectations point to a normalization back toward levels that are sufficient to sustain operations, but not high enough to drive aggressive growth.
For the market, this keeps US shale from acting as a rapid offset to global disruptions. Until confidence in longer-term pricing improves, producers are likely to remain measured, prioritizing stability over growth even in a stronger price environment.