Shale drillers are finding new and exciting ways to boost production in the Permian and elsewhere. This can make the industry more resilient to international price swings—but never fully resilient and never for very long. The pain from the prolonged price depression is beginning to bite in.
Back in October, Kpler warned that U.S. oil production could shed 700,000 barrels daily if international oil prices slid lower than $60 per barrel. The analytics firm cited drilled but uncompleted well data showing the inventory of these wells had shrunk by between 25% and 30% in the Bakken and the Eagle Ford basins since the start of 2025.
Now, Reuters is reporting that the Permian is also feeling the pinch, with towns dependent on the oil industry starting to suffer the economic consequences of a downturn. The publication interviewed industry executives and local business owners to find that the key industry of the region is retrenching, spending less, and idling rigs.
Everyone has, of course, heard about the layoffs in Big Oil majors. The majors themselves have framed it as part of a long-term strategy to become leaner. Reuters suggests that they are having trouble maintaining the workforce, citing Bureau of Labor Statistics data showing that overall employment in the U.S. oil industry declined by 4,000 between January and July this year. Over the same period, however, production of crude oil has continued to grow, creating a perhaps confusing picture.
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The confusion goes away once focus shifts to those drilling efficiency gains that Bloomberg’s Javier Blas detailed earlier this month, noting supermajors’ race to lower drilling costs in the shale patch by researching cheaper proppants, for instance, and surfactants that help the oil flow more easily from the rock. The focus, he wrote, citing the industry, was to maximize recovery rates from existing wells.
“The best place to find oil is where you already know you’ve got oil,” Chevron’s chief executive, Mike Wirth, told Blas in an interview. “We know where the oil is. If we left 90% of the oil behind, it would be the first time in history that we didn’t figure out how to do it.”
So, that’s one reason drilling rigs are down—while production keeps climbing higher—but it is not the only reason, based on what Reuters reports from the Permian. “We’ve had dialogue with the administration, letting them know that oil prices in the low to mid $50s make returns increasingly difficult for investment. This will eventually make current production levels unsustainable,” the chief executive of Admiral Permian Resources told Reuters.
Meanwhile, as international prices decline, the cost of drilling a well has gone up by between 5% and 10% from last year, according to the boss of Latigo Petroleum. “The economics are completely upside down from where they were just in January. It’s more expensive to drill a well and you’re getting 20% less for your oil,” Kirk Edwards told Reuters.
Ironically, the pervasive perception of unrelenting production growth in the U.S. shale patch has become the chief reason for bearish oil price predictions, expecting supply to exceed demand for oil for a prolonged period of time. Analysts regularly cite record-breaking output numbers as evidence that oil supply keeps growing despite price movements, suggesting that U.S. shale is more resilient than what the industry itself says it is.
“Investment returns at $55 to $60 per barrel are not what they were at the same price five years ago because the best wells have been drilled,” Admiral Permian Resources’ CEO told Reuters, which also noted a slowdown in oilfield service activity as evidence of a broader downturn in the shale industry—even if the number of barrels per day produced by that industry are still climbing.
In fairness, that trend emerged earlier in the year as reported by the biggest oilfield service providers—every one of them reported slower business in North America and stronger business abroad. The early signs, therefore, were out there for everyone to see, but instead, analysts doubled down on booming shale output, driving a global supply overhang, which kept the pressure on prices high.
“Although majors and large independents can operate below $50/bbl, this price level would enforce cautious activity for most,” Kpler analyst Johannes Raubal wrote in October. “A severe, sustained $50/bbl scenario—a view held by some agencies and banks like Goldman Sachs—would cripple US crude supply,” he warned. Yet here’s JP Morgan, predicting continued growth in U.S. shale oil production, leading to a further slump in oil prices, potentially as low as $30 per barrel.
The trends in the U.S. shale industry suggest it will not come to that because production would stop growing long before that. And the first time the Energy Information Administration reports a negative change in output, prices will rebound like there was never a danger of a supply overhang, let alone one so substantial that it could push Brent crude below $40.
By Irina Slav for Oilprice.com
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