U.S. shale drilling activity is beginning to slow as oil prices decline and uncertainty surrounding the trade war adds to the pressure. Smaller producers are already halting new drilling projects in anticipation of a market turnaround, and larger producers may follow suit. The big question now is how long it will take for that turnaround to occur.
A month ago, Citigroup predicted that if U.S. oil prices fell below $60 per barrel, drilling would decrease significantly, as it tends to during price downturns. The bank’s analysts forecast that at $65 per barrel of West Texas Intermediate (WTI), shale producers would likely reduce the rig count by 25, stalling production growth. If WTI prices dropped below $60, as many as 75 rigs could be shut down, pushing production into a decline.
Currently, WTI is trading below $65 per barrel, and the rig count has dropped compared to the same time last year. Last week, there were 481 active rigs in the shale patch, down from 511 in 2024. However, drillers added one rig last week, which suggests that the industry has not yet fully adjusted to the lower prices.
The Energy Information Administration (EIA) recently revised its forecast for U.S. oil production growth, now expecting an increase of just 300,000 barrels per day (bpd) this year, down from a previous estimate of 400,000 bpd. The EIA attributed this change to lower demand growth, largely due to uncertainty caused by the ongoing tariff war. The International Energy Agency (IEA) also lowered its expectations for U.S. oil production growth, citing weaker oil demand forecasts as a result of the tariffs.
While forecasters revise their predictions, oil prices have partially recovered from the initial shock of the trade conflict. Some industry experts have compared the current situation to the 2020 lockdowns, which led to a collapse in oil prices and widespread bankruptcies. Although fears of a repeat are understandable, the fact that WTI dipped below $60 for a brief period has helped maintain some optimism within the industry.
There are reasons for cautious optimism. The economic impact of tariffs is the primary concern, but most of the countries targeted by U.S. tariffs are already working on new trade deals to alleviate the tariff burden. This suggests that the threat to global economic growth—and by extension, oil demand—may be overstated. If the economic slowdown is not as severe as expected, fears about weak oil demand could prove to be overblown as well.
Additionally, lower oil prices tend to stimulate demand. For example, during China’s severe lockdowns in 2020, the country increased its oil imports while prices were low. Similarly, Russia has become India’s largest oil supplier, overtaking OPEC producers.
However, the situation in U.S. shale is complicated by political factors. President Trump has pledged to keep gas prices low for American consumers. Lower gas prices are linked to lower oil prices, which in turn reduce drilling activity until supply tightens enough to raise prices again. Although Trump has expressed support for the energy industry, it is unlikely that he will pressure shale producers to drill when the economics do not justify it. Instead, his administration may focus on reducing regulatory barriers to encourage industry growth, but whether this will be enough to offset the effects of global trade uncertainty remains to be seen.
For now, drillers are cutting back on spending, a trend that is expected to continue throughout the second half of the year, unless the tariff dispute is resolved by June.
Ultimately, the situation in U.S. shale drilling depends on timing. Over time, producers will likely cut supply enough to push prices higher again. While forecasts fluctuate based on short-term price changes, the long-term cycles of the industry remain consistent.
Related Topics:
- Oil Prices Drop Amid U.S. Tariffs, Emerging Markets Struggle
- U.S. Active Oil and Gas Rig Count Increases Despite Price Slide
- Kremlin Closely Monitors Oil Price Decline Amid Economic Concerns