US oil production growth is stalling

Video game designers use a concept called “coyote time”: allowing characters to walk on air for a short time before gravity asserts itself and they fall to earth. This year, it has felt like the US oil industry has been operating on coyote time.

Drilling activity has slowed sharply. The number of rigs drilling for oil onshore in the US has dropped from 468 at the start of the year to 399 by the end of August, according to Baker Hughes. But output has continued to grow. US Lower 48 crude and condensate production rose from 10.89 million barrels a day in January to an all-time high of 11.36 million b/d in July, on Wood Mackenzie data. Now that growth is coming to an end.

Our forecasts show US Lower 48 oil production hitting a plateau in August, and starting to decline modestly in October.

Since the US tight oil boom began in 2010, we have seen sustained production declines only twice: during the price war of 2014-16, and during Covid. The first sustained decline outside of such extreme conditions will be a noteworthy event.

Earlier in the year, there was a lively debate over how the US tight oil industry would cope with West Texas Intermediate crude at US$50 a barrel. Chris Wright, the US energy secretary, said the industry could “absolutely” increase production with oil prices at those levels. But he acknowledged that there would be disruption and corporate bankruptcies as the industry cut costs to adjust to lower prices.

We are now seeing those arguments put to the test. And in the short term, at least, it has become clear that the US industry needs oil prices significantly above US$50 to continue to grow. Since April, WTI has averaged about US$63 a barrel, and production is about to start falling.

The Wood Mackenzie view

Back in April, Wood Mackenzie analysts predicted that the fall in crude prices and the slowdown in drilling activity onshore in the US would lead to production stalling and starting to decline in about six to nine months, and that is how it is now playing out.

It does not mean the full US resource base is becoming exhausted, or even close to it, says Nathan Nemeth, who leads Wood Mackenzie’s US Lower 48 supply analysis. There is enough recoverable oil in place to sustain Lower 48 production of over 10 million b/d through the 2030s.

The challenges today are about price. WTI at US$63 a barrel is not high enough to make production growth in the US economically sustainable. Since capital discipline became the rule for US E&P companies in the late 2010s, management teams have been focused on debt reduction and shareholder distributions ahead of growth. When prices fall and cash flows are squeezed, spending gets cut.

As Diamondback Energy, a leading producer in the Permian Basin, put it in a letter to shareholders in August: “We have set up our business for the rest of 2025 to hold oil volumes flat while cutting Capex… [and using] Free Cash Flow to pay down debt and continue repurchasing shares.”

Although the decline in US oil production has been coming, the confirmation that it is a reality – expected in official data from the Energy Information Administration in December – could still have an impact on the psychology of world oil markets.

Some significant factors are working to drive oil prices down, including steady production growth from eight of the leading OPEC+ countries. Their latest move was confirmed over the weekend. There is also the looming threat of a US recession triggered by the government shutdown.

But the realisation that US output has hit a plateau, and is now set to decline steadily unless conditions change, will put countervailing upward pressure on prices. It was easy to understand in principle that US tight oil growth would end. But actually seeing it happen in practice may be a different story.

Wood Mackenzie’s insight into the US Lower 48 upstream industry has been enhanced this year by a partnership with Novi Labs, an energy analytics company that has proprietary oil, gas and water production data for more than 25,000 wells in key states including Texas, Oklahoma and Louisiana.

Wood Mackenzie’s Nemeth says the new data partnership will help us better model near-term supply and marginal costs, based on more precise numbers for the volumes coming on from new drilling, underlying decline rates and operational expenses. The significance for world oil markets means that these data will be particularly closely scrutinised over the next few months.

In brief

The Trump administration has announced moves to support coal-fired power generation in the US. The Department of Energy is making a US$625 million investment to “expand and reinvigorate America’s coal industry”. The plan includes US$350 million for recommissioning and modernising old coal-fired power plants, and US$175 million for coal power projects in rural communities.

The administration has also cut funding worth a total of about US$7.6 billion for 223 energy projects. The energy department said awards were being terminated for projects that “did not adequately advance the nation’s energy needs, were not economically viable, and would not provide a positive return on investment of taxpayer dollars.”

Russell Vought, director of the Office of Management and Budget at the White House, described the projects as “Green New Scam funding to fuel the Left's climate agenda”. He added that 16 states would be affected, all of which were won by the Democratic candidate Kamala Harris in last year’s election.

The power and utility group AES is in talks about a possible US$38 billion acquisition by BlackRock’s Global Infrastructure Partners, several news outlets reported. The deal will be one of the largest infrastructure takeovers on record if it goes ahead.

Fermi America, a nuclear power and AI data centre startup, had a buoyant debut on the stock market. The company, which was co-founded by former energy secretary Rick Perry, aims to develop the world’s largest advanced energy, private grid and data centre project, in north Texas. Fermi shares, which were priced for its IPO at US$21 each, ended the week at US$28.60, giving the company a market capitalisation of about US$17 billion.

Other views

CCU – from decarbonisation to defossilisation – Simon Flowers and John Ferrier

Is CCUS viable in power generation? – Peter Findlay, Hetal Gandhi and Tania Alvarez

3 clouds on the horizon for solar and storage developers worldwide – Yana Hryshko

The largest data centers in the US: the top 10 questions on data centers answered

Shell says Trump administration’s attacks on wind projects harm investment – Jamie Smyth

It’s time for Mexico to stop flaring its precious natural gas – Jeremy M. Martin and Paul Youngblood

Quote of the week

“If you have young college graduates, I would tell them power is the way to go.”

Jon Gray, COO of Blackstone, gave a speech in which he talked about investment opportunities, and highlighted the electricity sector as a beneficiary of the AI revolution. “As you build out the grid, lots of companies are going to need to grow and invest. Same thing with utility services. Lots of ways to play picks and shovels,” he said.

Chart of the week

This comes from Wood Mackenzie’s most recent US Energy Storage Monitor report, produced in association with the American Clean Power Association. It shows installations in the second quarters of 2024 and 2025 in the three main sectors: utility-scale, residential, and commmunity, commercial and industrial (CCI). Q2 of 2025 was overall a strong quarter, but Wood Mackenzie analysts have raised concerns about the outlook. US utility-scale storage installations could drop 10% in 2027, largely because of uncertainty over the new Foreign Entity of Concern (FEOC) regulations on battery cell sourcing, our analysts say. See the full report for more details.

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