Although it provided most of the world’s supply growth over the past decade, US shale oil producers remain subject to the influence of OPEC+, and Saudi Arabia in particular. The alliance’s decision to swiftly unwind previous output cuts injected more than 2 million additional barrels per day into the market in a short time, causing a major buildup in global inventories and driving oil prices to collapse. The scene is familiar and repetitive: a large supply surplus that takes a year or more to clear, and once traders are convinced they can obtain any extra barrel at any time, prices tumble.
As always, what goes down eventually rises again. Producers have scaled back activity, both onshore and offshore, to preserve capital in preparation for the next upturn. But commodity prices are not the only factor behind the slowdown in exploration and production; supply costs and productivity also shape company decisions on allocating capital to new drilling. If history is any guide, the industry is now at a bottom in terms of oil prices from these perspectives. This does not mean prices cannot fall further — they might — but the fundamentals that determine whether production grows or contracts, namely supply costs and well productivity, are tilting toward higher prices in the near future.
As we enter the final third of 2025, several factors are shaping shale output. US production has clearly stabilized and may have begun to decline, according to Energy Information Administration (EIA) data. As of August 8, total US output stood at 13.327 million barrels per day, about 2% below the peak of 13.604 million barrels per day recorded on December 13, 2024. Of that figure, more than 9.6 million barrels per day came from the five largest producing states — Texas, New Mexico, North Dakota, Oklahoma, and Utah — where shale forms the largest share.
What cannot be denied is that steady daily growth in US output has stopped. As to why, debate continues. Possible reasons include: lower prices due to oversupply, reduced drilling activity, depletion of Tier I sites, the effects of mergers and acquisitions in the exploration and production sector, or even the impact of tariffs. Each of these factors may be contributing to crude price volatility.
The key point, and the central thesis of this article, is that costs are rising for the largest contributor to US oil output — shale — while well productivity is declining. Rob Conners of The Crude Chronicles published research pointing to an inflection point in both factors that has not yet been reflected in oil price forecasts. He said:
“In 2024, well productivity (measured as output per well) among the largest non-OPEC producers grew by only 3% — one of the slowest annual growth rates in the past 14 years, despite record output levels. History shows that when well productivity growth slows, non-OPEC producers are forced to turn to higher-cost fields to maintain output, which raises supply costs and pushes prices higher, particularly if demand remains stable or grows.”
In other words, the rising cost of developing these reserves requires higher prices to sustain activity; otherwise, production will not materialize.
Technology has helped deliver a modest productivity boost in the past four years, as companies radically rethought horizontal drilling and fracturing techniques. Lateral well lengths now routinely exceed 10,000 feet in major producing areas, with 12,000-foot wells becoming more common due to the wave of mergers. Drilling 15,000-foot wells has also become widespread.
Clay Gaspar, CEO of Devon Energy, told investors at a conference:
“How many dollars are we spending to drill the same number of wells, or perhaps more importantly, for the same lateral length? With longer wells and more innovation, we’re achieving greater capital efficiency. If we can get production from a 4-mile lateral well in one go, that’s a big win.”
Other innovations include adding more fracturing stages to inject greater volumes of sand into the reservoir, using artificial intelligence to optimize pumping, and placing more sand deeper into rock formations to unlock wider zones and convert lower-quality rock into higher productivity.
But views differ on whether technology can sustain current output levels. Chevron CEO Mike Wirth insisted the Permian Basin can maintain large-scale production for years to come, while Travis Stice, former CEO of Diamondback Energy, was less optimistic, saying on an investor call: “Production has peaked and will begin declining this quarter.”
Whichever view proves correct, the reality is that US output has already fallen by several hundred thousand barrels per day this year.
For this writer, the gap between currently planned projects and what is needed to avoid “energy poverty” in the near future means the shale sector still has a promising outlook. Despite today’s cloudy picture caused by oversupply, this phase is temporary — better days lie ahead for energy companies.
