Drilling activity in the U.S. shale sector is slowing as weaker oil prices and uncertainty caused by ongoing trade tensions prompt producers to cut spending and suspend new projects.
Smaller oil companies are already scaling back operations, anticipating a future rebound. Industry analysts believe larger producers may soon follow. The key question is how long the downturn will last.
Last month, Citigroup warned that U.S. shale drillers would reduce activity if oil prices fell below $60 per barrel. The bank predicted that at $65 per barrel of West Texas Intermediate (WTI), 25 drilling rigs could be taken offline, stopping production growth. If prices drop below $60, up to 75 rigs could be halted, potentially reversing output growth altogether.
WTI is currently trading below $65 per barrel, and the number of active rigs has fallen. As of last week, the U.S. shale patch had 481 active rigs—down from 511 a year ago. However, the addition of one rig on a weekly basis suggests that the sector has not yet fully retreated.
Forecasts Cut as Uncertainty Mounts
In response to falling prices, major energy agencies are lowering their expectations. The U.S. Energy Information Administration (EIA) recently trimmed its 2025 production growth forecast by 100,000 barrels per day (bpd), now projecting an increase of 300,000 bpd. The EIA pointed to weaker demand growth, largely tied to the economic uncertainty caused by tariffs.
The International Energy Agency (IEA) also expects slower U.S. production growth, citing the lowest global oil demand growth in five years. Tariffs are increasingly being blamed for negative trends across industries, much like earlier supply chain disruptions.
Despite these concerns, WTI has recovered slightly from earlier lows. Some in the industry are comparing the current situation to the 2020 pandemic lockdowns, when oil prices collapsed and triggered widespread bankruptcies. Still, the recent dip below $60 was brief, and that has given some hope to market participants.
Demand May Not Be as Weak as Feared
Analysts believe that fears of low demand may be overblown. While tariffs have affected global trade, many of the countries targeted by former President Trump are actively pursuing new trade deals to ease tensions. This could reduce the risk to economic growth and, by extension, oil demand.
Lower oil prices also tend to boost consumption. In 2020, for instance, China stockpiled crude oil during the price crash. More recently, Russia has overtaken OPEC members to become India’s top oil supplier, thanks to price competitiveness.
Political Pressure Meets Market Reality
President Trump has promised voters cheap gasoline, which requires cheap oil. But low oil prices make drilling less profitable, leading producers to cut back. Trump, a vocal supporter of the energy industry, is unlikely to pressure companies to drill unprofitably. Instead, his administration has focused on cutting red tape to lower operating costs, though it’s unclear if that will offset global market forces.
So far, companies are responding to the environment by reducing investment. Oilfield services firm Baker Hughes has reported that spending cuts and slower drilling could continue into the second half of 2025—unless the trade dispute is resolved by June.
Long-Term Trends Remain in Play
While near-term forecasts are regularly revised based on short-term price movements, the longer-term cycle remains unchanged. Reduced drilling will eventually tighten supply and push prices higher, though the timing is uncertain.
For now, the U.S. shale industry is waiting for prices to rise again—just as it has in past downturns.
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