A fully coupled geomechanics-reservoir model is developed to simulate the directional changes in permeability due to fluid injection and production in a reservoir. The model is implemented numerically by fully coupling a geomechanics model with a single-phase reservoir flow model using the finite element method. A strain-induced permeability model is developed based on the analysis of the grain fabric of intact and sheared oil sand specimens using a thin section imaging method. It can quantify the changes in permeability when material experiences shear deformation. In addition, the directions of the principal values of permeability are not restricted to some arbitrary axes, but governed by the induced strains. Thus, the effects of stress path and stress level are implicitly considered through effective stress-strain constitutive laws. The transient pressure response of a water injection test in a horizontal well is analyzed. Parametric, studies are also conducted to investigate the effects of permeability, deformability and initial stress conditions on the injection pressure. It is found that the changes in permeability resulting from dilations of the oil sands cannot be captured using the conventional permeability model as a function of volumetric strain because the volumetric strain is small. However, the strain-induced permeability model can accurately reflect the directional increase in permeability during water injection. It is shown that the induced pore pressure is relatively insensitive to the deformation modulus of the reservoir, as compared to the permeability. The initial stress condition dominates the propensity of hydraulic fracturing.