The U.S. shale patch is trimming capital expenditure budgets to preserve cash amid the lower oil prices. American producers could further cut back on spending and activity if the prevailing forecasts of a global oversupply materialize in the coming months.
Efficiency gains allow companies to pump more or equal volumes of crude with the same or reduced expenses.
The pullback in activity – the number of operating rigs and frac crews has crumbled in recent months – is not showing yet in the U.S. oil production figures. The shale patch is now in the lag window of a few months before the price decline shows up in output.
Efficiency gains are also pushing back production declines, but if the glut hits the global market and prices plunge in the $50s per barrel, the U.S. shale industry will likely curb drilling activity and cut capital budgets even more.
The market consensus appears to be that the strong summer demand is at its peak, and come the fourth quarter, global oil consumption will slow, and rising supply will overwhelm the market.
Growing supply from OPEC+ and higher output from South America will tip the market balance into oversupply toward the end of the year, analysts say.
Despite geopolitical risks, Wall Street banks have lowered their oil price forecasts for later this year and the first quarter of 2026, expecting the glut to depress prices.
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Major investment banks, including Goldman Sachs, Morgan Stanley, and JPMorgan, see Brent Crude prices averaging $63.57 per barrel in the fourth quarter, a survey compiled by The Wall Street Journal showed this week. The projection is down from $64.13 expected in July and down from the Friday prompt price of about $68 a barrel.
For WTI Crude, the banks expect the price to average just above $60 per barrel, at $60.30, in the fourth quarter, down from last month’s $61.11 a barrel and down compared to the current price of about $64 a barrel.
Oil prices are set to further drop in the first quarter of 2026, with Brent at $62.73 and WTI at $59.65 per barrel, according to the Journal’s survey.
The glut will diminish by the third quarter of 2026, the banks reckon, as excess supply shocks are absorbed during next summer’s peak demand period.
But banks, analysts, and market participants expect oil supply to outstrip demand over the next six months, putting additional downward pressure on prices. This would make U.S. shale producers even more cautious with spending and budgets because a dip below $60 per barrel is threatening breakevens for drilling new wells.
The U.S. Energy Information Administration (EIA) is even more bearish than major banks in oil price projections.
The EIA expects in its latest Short-Term Energy Outlook (STEO) Brent to slump in the coming months, falling from $71 per barrel in July to average just $58 in the fourth quarter of 2025 and around $50 per barrel in early 2026.
Earlier this year, shale executives said that a $50 WTI price would result in declining U.S. crude production.
U.S. shale production will likely plateau if WTI prices remain in the low $60s per barrel, and decline at prices in the $50s, ConocoPhillips chairman and CEO Ryan Lance said in May.
Due to the OPEC+ supply hikes, global oil inventory builds will average more than 2 million barrels per day (bpd) in late 2025 and early 2026, which is 800,000 bpd more than in last month’s STEO.
“Low oil prices in early 2026 will lead to a reduction in supply by both OPEC+ and some non-OPEC producers, which we expect will help moderate inventory builds later in 2026,” the EIA said.
The administration expects Brent prices to average $51 a barrel next year, down from last month’s forecast of $58 a barrel.
Current growth in well productivity will push U.S. crude oil production to an all-time high near 13.6 million bpd in December 2025, the EIA said.
However, as crude oil prices fall, the EIA sees U.S. producers accelerating the decreases in drilling and well completion activity that have been ongoing through most of this year. As a result, U.S. crude oil production is set to decline from a record-high 13.6 million bpd at the end of this year to 13.1 million bpd by the fourth quarter of 2026.
Energy Intelligence forecasts U.S. shale to show greater resilience in the face of falling prices, expecting U.S. crude production to be flat at around 13.5 million bpd through the end of 2025, and closing 2026 at about 13.4 million bpd.
The actual U.S. production will depend on how large the expected oversupply will be and how low oil prices will dip, as well as to what extent efficiencies can offset a drop-off in drilling activity and budgets.
By Tsvetana Paraskova for Oilprice.com
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