Why U.S. oil production could even go into reverse
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The prospect of U.S. oil production growth not just stalling but going into reverse is edging into the picture.
Why it matters: The price drop and trade policy uncertainty might spur a decline this year or next despite Trump officials' goal of boosting output.
- It would be a striking example of how President Trump's trade policies hit the sector that embraces other parts of his agenda.
"At these prices, we would not be surprised to see U.S. oil output decline this year," Barclays' Amarpreet Singh said in a note Friday.
- While Trump has paused big new tariffs on many countries, the baseline 10% remains, and he imposed massive levies on China.
- And what happens after the 90-day pause announced last week is a mystery. So is the hit to demand growth from economic headwinds.
State of play: Even before the April 2 tariff announcement, analysts were predicting rather modest 2025 growth from world-leading levels.
- Most outlooks still project a small rise. But it's looking wobbly.
- The U.S. Energy Information Administration last Thursday revised its U.S. oil outlook slightly downward, now seeing production growth of 2.2% this year and 0.4% in 2026.
How it works: While shale production is rather flexible, commodity outlook changes have a delayed effect unless they're huge.
- That's true even as prices are near or below what it takes to profitably drill new wells in many locations.
What they're saying: Wood Mackenzie analyst Ann-Louise Hittle noted it takes 6-9 months for a change in rig activity to affect production. Woodmac still sees modest growth this year.
- "We believe even lower near-term oil prices would be needed to result in deferred well completions or shut ins to reduce 2025 Lower 48 oil supply significantly," Hittle, Woodmac's VP for oil markets, said via email.
Threat level: S&P Global Commodity Insight, even before April 2, saw just a 150,000 barrel-per-day increase in production growth from Lower 48 onshore wells this year.
- If U.S. crude prices fell to $50 per barrel, S&P sees U.S. onshore production falling by over a million barrels per day over 12 months.
- The U.S. benchmark WTI is trading at $62.43 Monday morning after dropping to $58-range briefly last week.
The big picture: As Axios noted recently, "drill, baby, drill" is also about setting the stage for long-term access to acreage and opportunities, not just near-term supply.
What's next: The International Energy Agency's closely watched supply and demand outlook for 2025 and 2026 lands Tuesday.
