(The opinions expressed here are those of the author, a

columnist for Reuters.)

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US drillers slow down operations following oil price drop

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US oil output growth set to slow in 2025

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OPEC will need to deepen price war to significantly impact

US

output

By Ron Bousso

LONDON, May 29 - Oil drillers in the U.S. shale

heartland are slowing down operations, a sign that OPEC's

high-stakes price war is starting to pay off, but Saudi Arabia

will need to exert a lot more pain to make a lasting impact on

market share.

U.S. oil producers upended the global market in the early 2010s,

as the innovative 'fracking' drilling technique allowed them to

tap vast onshore shale formations. Consequently, the United

States, long the world's top oil consumer, became its leading

producer as of 2018. It currently pumps around 13.5 million

barrels per day, around 13% of world supplies.

The rising tide of U.S. oil has long irked the Organization

of the Petroleum Exporting Countries, which has seen its market

share steadily erode over the past two decades.

Saudi Arabia, OPEC's de-facto leader, in 2014 sought to curb

surging U.S. output by flooding the market with cheap oil. This

effort bankrupted a number of shale producers, but it only

temporarily paused the country's ascent as companies adapted to

lower prices and the industry consolidated.

PRICE WAR REDUX

Riyadh and its allies, a group known as OPEC+, are now giving it

another go. They surprised the market earlier this year by

announcing that they would rapidly unwind 2.2 million bpd of

production cuts introduced in 2024. The group is expected to

announce further increases in production later this week.

Benchmark U.S. oil prices have dropped by nearly a quarter

since January to around $61 a barrel in response to OPEC+'s

strategy as well as concerns over U.S. President Donald Trump's

trade wars.

At these prices, many shale wells are not profitable, as

frackers require an oil price of between $61 and $70 a barrel to

expand production, according to a survey conducted by the Dallas

Federal Reserve Bank.

And sure enough, nimble frackers have already responded by

paring back drilling activities to conserve cash.

The number of U.S. onshore oil drilling rigs dropped by eight to

465 last week, the lowest since November 2021, according to

energy services firm Baker Hughes ( BKR ).

Crucially, drillers in the Permian Basin in West Texas and

eastern New Mexico, which accounts for nearly half of U.S.

production, cut three rigs, bringing the total down to 279, also

the lowest since November 2021.

Crude production from new Permian wells, a measure of

productivity, slightly improved in April, but that was largely

offset by declines in other basins.

And multiple indicators suggest activity is set to

decelerate further.

Importantly, Frac Spread Count, which measures the number of

crews actively performing hydraulic fracturing, has seen a 28%

annual drop to 186, according to energy consultancy Primary

Vision, an indication that production could fall sharply in the

coming months.

Another measure to watch is drilled but uncompleted wells

(DUCs), or partially completed wells that can start production

quickly, offering operators flexibility to withhold production

until market conditions improve. DUCs have risen by 11% since

December 2024 to 975 in the Permian Basin.

DOWN BUT NOT OUT

While the latest data on shale drilling activity suggests

U.S. production will continue to slow, it is far from falling

off a cliff.

The U.S. Energy Information Administration reduced in May its

forecasts for U.S. production in 2025 and 2026 by around 100,000

bpd to 13.4 million bpd and 13.5 million bpd, respectively,

compared with 13.2 million bpd last year.

Production in the Permian Basin is forecast to average 6.51

million bpd in 2025, down from its previous estimate of 6.58

million bpd. But that would still mark a significant increase

from 6.3 million bpd in 2024.

OPEC+ may find it even harder to have a sustainable impact now

than it did in 2014 as the U.S. shale landscape is significantly

different from a decade ago.

True, 15 years of intensive oil and gas drilling have depleted a

large chunk of the most profitable shale acreage.

However, shale drillers have in recent years adopted much

stricter spending discipline, focusing on returning value to

shareholders in contrast with last decade's focus on growing

production. Independent U.S. oil and gas producers have so far

reduced their planned 2025 spending commitments by an aggregate

4% to $60 billion, while output is expected to remain largely

flat, according to consultancy RBN Energy.

Also, production today is concentrated in the hands of far fewer

companies, such as Exxon Mobil ( XOM ) and Chevron ( CVX ). These energy majors

have developed highly efficient drilling techniques and boast

strong balance sheets that leave them better equipped to

withstand the OPEC assault.

Current oil prices are therefore likely to temporarily curb U.S.

production but not lead to the type of sharp deceleration seen

in 2014. OPEC+ will therefore need to deepen and extend its

price war for many months if it seeks to fundamentally change

the oil production balance of power.

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