US oil producers say Opec ‘price war’ will halt shale boom

US shale producers are idling drilling rigs and holding back spending as they shelter from an Opec-induced price slump that is likely to send American output sharply lower.

The number of crews fracking shale oil and gas wells — a crucial barometer of the industry’s activity levels — hit a four-year low last week and producers have wiped about $1.8bn from capital spending plans over just two quarters.

This week the federal Energy Information Administration predicted that US oil output would fall next year, as crude prices drop to just $47.77 a barrel, almost $20 below shale drillers’ break-even price.

Shale executives told the Financial Times they were in a new “price war” with Saudi Arabia, Russia and other Opec members — and it would imperil President Donald Trump’s call for America to pump more crude.

“What the administration doesn’t quite understand is that we’ve gone from drill, baby, drill to wait, baby, wait,” Kirk Edwards, chief executive of Latigo Petroleum in Odessa, Texas, said in an interview. 

“We are not going to be putting any more rigs out until prices get back and stabilise in the $75 range ahead. You will see US production start to drop in the fall and into 2026.”

Soaring shale output over the past 20 years made the US the world’s biggest oil and gas producer. But its high cost of production has left it vulnerable to crude price swings.

Scott Sheffield, who ran shale producer Pioneer Natural Resources, now part of ExxonMobil, said Opec was forcing another reckoning on his sector.

“The best way [for Opec] to gain market share is to keep oil prices in the $60s range for several years. This will reduce investment in US shale, Canada, Brazil and oil exploration around the world . . . [it] will force consolidation,” he said.   

On Wednesday the International Energy Agency said a surge in global oil production led by Saudi Arabia and weaker than expected growth in demand created the potential for a “large overhang” in the market.

Crude oil prices have fallen by almost 13 per cent since April 1, with West Texas Intermediate settling at $62.21 a barrel on Wednesday, below the $65 the Federal Reserve Bank of Dallas’s quarterly survey says shale producers need to turn a profit.

Fears that Middle Eastern turmoil could hit global oil output have turned into anxiety in Texas, the US’s most prolific energy-producing state, about a glut of supply.

Opec began boosting production in April and plans to add more than 2mn barrels a day to supply — about as much as Germany’s total consumption. At a meeting earlier this month the cartel agreed to keep raising supply in September.

Francisco Blanch, head of global commodities and derivatives research at Bank of America, said Riyadh — which can extract oil cheaply — had America’s higher-cost shale producers in its sights.

“Saudi Arabia is driving this production increase from Opec because it wants to win back market share lost to US shale,” he said. Blanch predicted a “long and relatively shallow price war”.  

The EIA on Tuesday said that as prices drifted lower, US output would start to struggle too. From a record high of 13.6mn barrels a day this year, production would drop to 13.1mn by December 2026.

The decrease next year would be the first — bar the coronavirus pandemic years — for the world’s biggest producer since 2015, when an earlier Opec price war also hammered the US.

The top 20 US shale producers, excluding supermajors ExxonMobil and Chevron, cut their 2025 capital expenditure budgets by about $1.8bn over the past two quarters, according to Enverus.

TD Cowen, an investment bank, said shale drillers’ 2025 capex would end the year 4 per cent lower than in 2024.

To preserve cash flows, producers have taken rigs offline: 539 were drilling for onshore oil in the US last week, almost 10 per cent fewer than in the same period last year, according to oilfield services company Baker Hughes. Just 167 fracking crews were operating, down 76 this year, according to data provider Primary Vision. 

The companies are also trying to eke out more efficiency gains, drilling longer wells more quickly. Permian Resources said every drilling day it reduced saved it about $100,000 during the second quarter.

“We’re really pushing the limits of what we know is capable,” Kaes Van’t Hof, chief executive of Texas shale producer Diamondback Energy, said on a recent analyst call.