ONG Report: Energy Steadies Amid Monetary Caution and Policy Pushback

The energy sector is kicking off 2026 on a note of cautious stability. Central bankers are holding interest rates steady even as oil prices climb, signaling a delicate balancing act between supporting growth and taming inflation. At the same time, the natural gas industry is pushing back against new efficiency regulations, elevating a policy battle to the nation’s highest court. And on the ground, oil and gas drilling activity remains level, with rig counts barely budging as companies stick to a disciplined game plan. This confluence of steadiness and resistance sets the stage for investors as the new year begins, highlighting both the calm and undercurrents in today’s energy landscape.

A Steady Start for Energy: Your 6 Key Takeaways This Week

• Fed on Hold: The Federal Reserve left its benchmark interest rate unchanged at 3.50%–3.75%, pausing further cuts amid persistent inflation concerns.
• Oil Above $63: U.S. crude oil prices climbed above $63 per barrel this week, driven by winter supply disruptions and a weaker dollar, adding to inflationary pressures.
• Gas Industry Appeals Furnace Rule: Major natural gas groups petitioned the Supreme Court to overturn a new federal furnace efficiency rule that would phase out most non-condensing gas furnaces.
• Efficiency Rule Backlash: Gas utilities warn the furnace mandate will force costly home retrofits and effectively push many consumers to switch from gas to electric heating, limiting consumer choice.
• Oklahoma Drilling Steady: Oklahoma’s rig count held flat at 43 active rigs this week, with key fields like the Cana Woodford (17 rigs) and Granite Wash (16 rigs) unchanged – signaling stable local drilling activity.
• U.S. Rig Count Levels Off: The nationwide rig count hovered around 546 rigs, essentially unchanged week-over-week, reflecting a cautious, level approach to oil and gas development as 2026 begins.

Why did the Fed hold rates steady amid inflation concerns?

The Fed pauses easing: In its first policy meeting of 2026, the Federal Reserve opted to hold interest rates steady at 3.50%–3.75%, after having cut rates three times late last year. Policymakers decided not to reduce rates further, citing mixed economic signals and inflation that remains above the 2% target. The central bank’s statement noted that while economic activity is growing at a “moderate” pace, the labor market is showing signs of cooling – job gains have slowed and unemployment has stabilized. Given this backdrop, Fed officials chose caution over additional stimulus, signaling they will wait for clearer evidence that inflation is durably moving down before considering more cuts.

Energy prices complicate the outlook: A key reason for the Fed’s cautious stance is the recent rise in energy costs. Oil prices have surged to multi-month highs, introducing renewed inflationary pressure. West Texas Intermediate (WTI) crude pushed above $63 per barrel in mid-week trading, boosted by winter storm supply disruptions, a softer U.S. dollar, and geopolitical tensions. These higher oil prices threaten to feed through to consumer inflation (e.g. pricier gasoline and heating fuel), just as the Fed is trying to guide inflation back to target. The weaker dollar amplifies this effect by making commodities like oil more expensive globally. Fed analysts acknowledge this dynamic complicates their job – rising energy costs keep inflation elevated even as other economic indicators (like hiring) soften. In short, expensive oil is “a continuing inflationary risk” that the Fed cannot ignore, and it likely influenced the decision to stand pat on rates for now.

Policy under pressure: The decision to hold rates was widely expected by markets (futures had priced in a near-100% chance of no change), but it wasn’t without debate inside the Fed. Notably, two members of the Federal Open Market Committee dissented – Governors Christopher Waller and Karen Miran voted in favor of an immediate rate cut at this meeting. Their dissent hints that some at the Fed remain eager to provide more support to the economy, and it suggests the easing cycle may resume if inflation shows convincing signs of cooling. In addition, the Fed faces political cross-currents: the White House has openly pressed for deeper rate cuts to bolster growth, while Fed leadership under Chair Jerome Powell is under close scrutiny for its handling of inflation. For now, the majority of the committee chose to “hold fire” and assess incoming data. The takeaway for investors: monetary policy is in a holding pattern – borrowing costs remain steady – but any significant change in inflation or growth could quickly alter the Fed’s trajectory in the coming months.

Why is the gas industry challenging new furnace efficiency standards?

A Supreme Court appeal: A coalition of natural gas industry groups is mounting a legal fight against the Biden administration’s latest furnace efficiency regulations. The American Gas Association (AGA), joined by the American Public Gas Association and the National Propane Gas Association, has petitioned the U.S. Supreme Court to overturn new Department of Energy (DOE) rules on residential and commercial gas furnaces. The contested DOE rule, finalized last year, sets higher efficiency requirements that would effectively ban the sale of most non-condensing gas furnaces (and certain gas water heaters) in favor of condensing models. A federal appeals court (D.C. Circuit) upheld this regulation in a 2–1 decision, but the gas groups argue that ruling was mistaken. They warn the furnace mandate could “eliminate affordable home heating options for millions of Americans,” especially those relying on older furnace models. By taking the case to the Supreme Court, the industry hopes to halt what it views as federal overreach and preserve consumers’ ability to purchase standard gas furnaces beyond the rule’s compliance date.

Industry concerns over the furnace rule: Gas utilities and propane providers aren’t just fighting on legal technicalities – they are sounding alarms about practical impacts on homeowners and businesses. They cite several major concerns in pressing their case against the efficiency rule:

• Costly retrofits: Upgrading from a non-condensing to a condensing furnace often isn’t a simple swap. Condensing furnaces use a different venting system (usually requiring PVC piping), which many older homes and multifamily buildings don’t have. In such cases, homeowners might need to undertake expensive renovations – opening walls, installing new vent runs, and managing condensate drainage – just to accommodate the new furnace. This could add thousands of dollars in out-of-pocket costs.
• Restricted consumer choice: If the rule stands, consumers needing to replace a furnace may have no gas options available unless their home can handle a condensing unit. The industry warns this outcome will force some families to “switch to electricity and pay higher monthly energy bills,” as AGA CEO Karen Harbert put it. In other words, the policy could push consumers away from natural gas even when it’s their preferred or more affordable heating source. Gas providers see this as a de facto move to electrify home heating, dictated by regulation rather than market choice.
• Conflict with federal law: The petitioning groups argue the DOE’s rule violates the Energy Policy and Conservation Act (EPCA) – the very law that governs appliance efficiency standards. EPCA contains a provision barring DOE from adopting standards that “result in the unavailability” of a product type with unique performance characteristics. Non-condensing furnaces have a different venting profile than condensing ones, which the industry views as a “unique characteristic.” By essentially outlawing non-condensing models, DOE may be running afoul of EPCA’s limits. This legal point is central to the gas groups’ case: they contend the lower court misinterpreted EPCA, and they want the Supreme Court to reaffirm that you cannot regulate an entire class of products out of existence.
• Precedent for more bans: Gas utilities also fear that if this furnace rule is left intact, it could set a precedent for restricting other gas appliances. Today it’s furnaces; tomorrow it could be standard gas water heaters, stoves, or dryers targeted under the guise of “efficiency.” The industry sees the furnace rule as a slippery slope toward broader fuel-switching mandates, where efficiency standards become a backdoor way to favor electric appliances over gas across the board. Such a shift would threaten long-term demand for natural gas in residential and commercial markets.
• Consumer energy choice: Underlying the industry’s position is a philosophical point: Americans should be able to choose their heating energy source. “Public natural gas utilities believe Americans should have the right to install or replace home appliances that use the energy source of their choice,” says Dave Schryver, CEO of the APGA. He and others argue that government efficiency goals shouldn’t come at the cost of forcing consumers to switch fuels or pay for retrofits they neither budgeted for nor wanted. In their view, the rule as written undermines consumer choice and erodes the value proposition of the natural gas utility networks in dozens of states.

By elevating the fight to the Supreme Court, the gas industry aims to clarify the limits of federal authority on appliance standards and prevent a one-size-fits-all outcome. This case will be closely watched across the energy sector. It has implications not only for furnace makers and gas utilities, but also for climate policy advocates and electric utilities (who see potential gains if more homes convert to electric heat). A Supreme Court review in 2026 could determine whether efficiency regulations can indirectly drive energy transition in buildings, or whether the courts will pull back and preserve the status quo of fuel-neutral consumer choice.

Is drilling activity stabilizing in Oklahoma and across the U.S.?

Flat rig counts signal caution: The latest drilling data show a remarkably steady trend in oil and gas activity. In Oklahoma, the number of active rigs held at 43 this week, unchanged from the previous week. According to Baker Hughes, little has changed in the state’s fields: the Cana Woodford shale play remains the most active with 17 rigs, followed closely by the Granite Wash at 16 rigs. Smaller basins like the Ardmore Woodford (4 rigs) and Arkoma Woodford (2 rigs) saw no change, and the legacy Mississippian play again recorded zero active rigs. This consistency indicates that Oklahoma operators are maintaining drilling programs at a steady pace – continuing ongoing projects but not ramping up with new rigs despite the new year. It’s a sign of operational discipline and perhaps caution, as producers balance their budgets against commodity prices.

Nationwide plateau: The story is similar across the United States. The total U.S. rig count is hovering around 546 rigs, essentially flat week-over-week. In the most recent Baker Hughes report (week ending Jan 26), the U.S. added just one rig compared to the week prior – a trivial uptick that underscores how stable activity has become. Major oil basins are static: the Permian Basin – the country’s largest oilfield – held at 244 rigs, unchanged in the latest count. Other key regions showed similar steadiness: North Dakota’s Williston Basin remained at 28 rigs, South Texas’s Eagle Ford stayed at 40, and the gas-rich Haynesville in Louisiana/Texas was steady at 42 rigs. Only a few small movements were noted (e.g., the Denver-Julesburg Niobrara play in Colorado gained 2 rigs to total 9), but no broad trend of either growth or decline. This nationwide plateau in rig activity suggests that companies are in wait-and-see mode, deploying just enough rigs to hold production flat or modestly growing, but not embarking on a new drilling expansion.

Discipline after last year’s surge: It’s worth noting that U.S. drilling levels are slightly below where they stood a year ago. The current 546 rigs active are about 43 fewer than at this time last year – roughly a 7% year-on-year decline. This comes after a year (2025) in which rig counts see-sawed and ultimately ended lower. Producers have become more efficient and more selective about projects, especially with investors pushing for capital discipline over volume growth. Impressively, even with fewer rigs running, U.S. crude oil output remains near record highs, around 13.8 million barrels per day. The Energy Information Administration data show production in late 2025 just shy of the all-time peak, thanks to better well productivity and a focus on the best drilling locations. In other words, the industry is managing to do more with less – maintaining high output with a leaner rig fleet.

For investors, this stable rig count combined with strong production is a double-edged sword. On one hand, restrained drilling can prevent over-supply and support oil and gas prices, which is positive for energy company revenues. It also means operators are likely prioritizing shareholder returns and debt reduction over aggressive expansion. On the other hand, if commodity prices rise sharply, there may be only a limited supply response given the current cautious stance – which could lead to tighter markets. As 2026 begins, the rig count trend suggests a continuation of the “disciplined era” in U.S. shale: growth at a measured pace, with an eye on profitability and market balance rather than rapid expansion. It’s a vastly different mindset from the boom years, but one that many in the industry and on Wall Street have come to welcome.

Investor Summary

• Monetary Policy in Check: The Fed’s decision to hold interest rates steady means borrowing costs remain stable for now. However, investors should keep an eye on inflation drivers like oil prices – a continued rise in energy costs could delay future rate cuts and influence financing conditions for energy projects.
• Oil Price Upside and Inflation: Crude oil hitting multi-month highs above $63 is a two-edged sword for investors. It bodes well for oil & gas company revenues and cash flow in the near term, but it also prolongs inflationary pressures. Higher inflation might sway central bank policy and dampen consumer sentiment, so energy investors should consider hedging price risk and monitoring policy signals closely.
• Regulatory Risk for Natural Gas: The furnace efficiency rule fight highlights the regulatory risks facing the natural gas value chain. If the Supreme Court upholds the DOE rule, gas appliance makers and utilities could see market shifts toward electrification. Investors in these areas should evaluate exposure to potential policy-driven fuel switching, while those in electric HVAC or heat pump markets might find opportunity in a pro-electrification outcome. The case underscores the importance of policy analysis as part of due diligence in energy investments.
• Stable Operations, Stronger Fundamentals: The flat rig counts in Oklahoma and across the U.S. indicate that producers are exercising capital discipline. This restraint helps prevent oversupply and supports commodity prices, which can improve profit margins. For investors, steady activity with high operational efficiency means many oil & gas firms may generate robust free cash flow even without production growth. Look for companies highlighting efficiency gains – doing more with fewer rigs – as they are likely positioned to return more value to shareholders.
• Outlook – Cautious but Optimistic: Entering 2026, the energy sector’s theme is “steady as she goes.” Interest rates are not an immediate headwind, commodity prices are firm, and companies are avoiding reckless expansion. There are risks on the horizon (inflation, regulatory changes, geopolitical events), but overall the industry is on solid footing. Investors should watch how these steady trends evolve – whether the Fed pivots, whether legal decisions alter the gas/electric mix, and whether drilling discipline holds if prices rise. Adapting to these developments will be key, but the starting point this year is one of measured confidence.

At Bass EXP, we don’t just follow the news — we put it to work. Learn more about direct participation in oil and gas opportunities at bassexp.com.