2025 U.S. Oil Forecast: Expect More Than Just a 'Drill Baby Drill' Approach

The November election brought optimism to many oil producers who felt hamstrung by the Biden Administration’s policies. Even Biden’s ban on offshore drilling is expected to be challenged or changed when Trump is sworn in. However, administrations can only do so much when it comes to global supply and demand dynamics. In fact, they can usually do little in the big picture; and the big picture is that there is probably going to be more supply coming online in 2025 than demand to meet it. Therefore, U.S. upstream producers are not planning on blowing their budget on aggressive drilling plans, no matter what Trump says, especially considering the lukewarm pricing environment that the market foresees. In addition, the U.S.’ shale dominance may be headed towards inevitable decline. There’s a lot to consider, so let us jump in.

Provision: Corrupted Hopefulness

The incoming Trump Administration has promised to pull back regulatory restraints and unleash the industry to “drill baby drill”. Most industry players have responded favorably to this and anticipate faster permitting processes for federal lands. In addition, the Dallas Fed Energy Survey has indicated activity and outlook upticks from upstream producers after the election. The industry is encouraged. Yet, as college football announcer Lee Corso says – “Not so fast my friend!” Most of the active U.S. oil activity is not on federal lands, but on private or state lands. In addition, oil is a global commodity, not a regional one and it appears that the supply in 2025 is heading towards more of a glut status as opposed to a tight one. The latest Short Term Energy Outlook estimates that production outside of OPEC+ will be up about 1.6 million barrels per day in 2025 with concurrent demand only up about 1.2 million barrels per day. The U.S., Canada, and South America will be leading that charge.

In the meantime, OPEC+ has held fast on a plan of production restraint whereby there are about six (6) million barrels per day of production capacity that is being held back. Saudi Arabia possesses about half of that. Most U.S. firms surveyed recently are not planning on increasing their investments for 2025, even after now knowing who will be in the White House for the next four years. In fact, industry consultant Wood Mackenzie just released a report on 2025 guidance for upstream companies capital budgets. They estimate 2025 corporate capital budgets to be down by 1.8% compared to 2024. These are not indicators of an industry that is “chomping at the drill bit” right now. One reason is that breakeven prices to drill new wells ranged from $59 – 70 as an industry average in 2024 according to the Dallas Fed Survey suggesting a mediocre economic prospect.

Currently, West Texas Intermediate crude is trading at approximately $76, making drilling operations profitable, though not exceptionally lucrative. Furthermore, a significant number of U.S. drillers engage in hedging their sale prices to accommodate the conservative risk preferences of banks and investors, which restricts potential profit margins. As a result, this year, most U.S. producers are unlikely to be strongly motivated to pursue aggressive drilling strategies in their boardroom discussions.

Is U.S. Shale Oil Reaching Its Peak?

Hydraulic fracturing in shale formations revolutionized the oil industry a little over a decade ago. During that time technology and innovations have continued to improve. Production of oil for every rig that drills new wells has continued to increase. There have been efficiencies and innovations that have contributed to this trend. However, it won’t last forever, and there are signs that it may be close or already peaking. The same EIA report that shows more productivity per rig, also shows nearly every basin having steeper legacy oil production change from last year. It’s harder to fill a bathtub if the drain is getting bigger.

In addition, there is a shrinking inventory of drilled but uncompleted (“DUC”) wells in the U.S. These kinds of wells are available to be fracked but haven’t yet started producing. I discussed this dynamic in my column Next Page

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