U.S. Shale Producers Put Brakes on Drilling Amid Steep Tariffs and Crude Price Slump
The sharp decline in crude prices to multi-year lows and the imposition of steep tariffs have led some small U.S. shale producers to slow down or put a hold on oil drilling. This move could potentially slow future output growth from the world’s top oil producer, which is forecast to reach a record high this year.
U.S. Oil Production Forecast
Total U.S. production is expected to reach a new record of 13.7 million barrels per day (bpd) in 2024, with around 9.7 million bpd coming from shale. However, both domestic and international energy watchdogs have cut their forecasts for 2025 total U.S. production growth.
The U.S. Energy Information Administration (EIA) has reduced its output growth forecast by 100,000 bpd to 300,000 bpd, while the Paris-based International Energy Agency (IEA) has cut its U.S. supply growth forecast for 2025 by 150,000 bpd to 490,000 bpd. The IEA also predicted that global oil demand growth would slow down to its lowest rate in five years.
Impact of Tariffs on Oil Drilling
The steep tariffs imposed by President Donald Trump’s administration have increased energy industry costs. Prices for casing, the steel pipe used to structurally support a drilled well, have risen to $19 per foot, up from $15 earlier this year. This additional cost can add up to $64,000 per well, which is nearly a 10% increase to the cost of drilling and completing a well.
Bill Daugherty, co-founder and managing partner of Blackridge Resources, an independent operator working in the Appalachian basin in the eastern U.S., producing around 500 bpd, said that his company will drill only 10 out of the planned 15 prospects due to the recent slump in oil prices. "We’re paring back on drilling until we see what happens with the tariffs and demand for oil, and where oil prices go," Daugherty stated.
Oil Price Volatility and Drilling Plans
U.S. crude futures tumbled to a more than four-year low of $55.12 per barrel in April as investors worried that tariffs could prompt an economic slowdown. However, the benchmark rebounded to over $62 after Trump announced a 90-day pause on tariffs for countries other than China.
Despite this rebound, oil prices remain pressured by the escalating trade war. On Thursday, U.S. crude settled at $62.79. Dan Doyle, president and owner of Arena Resources, a Wyoming-based operator producing around 1,000 bpd, and fracking firm Reliance Well Services, said that his company will delay plans to drill three wells next month at a drilling pad built in Powder River, Wyoming.
Doyle pointed out that breakeven costs are among the highest in the U.S. in the Powder River area, at around $58 per barrel. In contrast, operators can make money at $38-42 per barrel in the Permian basin. "Nobody’s going to make money at $60 oil," Doyle said.
Impact on Oilfield Service Firms
Oil producers are set to report their first-quarter earnings in the coming days. U.S. oilfield service firms Baker Hughes and Halliburton have already warned of a hit to their revenues from less drilling. Baker Hughes also flagged cost impacts from tariffs.
Oil and gas producer spending in the U.S. and Canada is expected to decline by a low-double digit percentage, according to Baker Hughes. Analysts estimate that for every $5 decline in crude prices, U.S. shale spending falls by around 5%.
Long-term Consequences
The sharp slowdown in oil drilling could have long-term consequences for the industry. Doyle said that his company is looking at "a real slow down right now in fracking because people are going to wait." The Permian, the largest U.S. oilfield, may also be affected by the decline in drilling.
Some operators not currently drilling are taking advantage of the current situation to get ahead of prices rebounding. Michael Oestmann, CEO of Midland-based Permian producer Tall City IV Exploration, said that his company is planning to drill in late 2025 and early next year. "It’s a good time to be moving ahead, buying acreage and getting ready for the next cycle," Oestmann stated.
Conclusion
The sharp decline in crude prices and steep tariffs have led some U.S. shale producers to slow down or put a hold on oil drilling. This move could potentially slow future output growth from the world’s top oil producer, which is forecast to reach a record high this year. The impact of tariffs on oil drilling has been significant, with increased costs and reduced revenues for operators.
As the industry navigates these challenging times, it remains to be seen how long-term consequences will unfold. Will operators adapt quickly enough to survive in an era of low crude prices? Or will some companies struggle to stay afloat in a market characterized by uncertainty? Only time will tell.