US tight oil to face higher costs from tariffs, but significant increases offset from deflation elsewhere

US Lower 48 tight oil well costs will see pressures from tariffs, but significant increases will be offset by cost deflation elsewhere, particularly in declining prices for proppant, drilling rig and pressure pumping, according to a recent analysis from Wood Mackenzie.

The report “2025 tight oil costs: tariffs, trade and oil price turmoil” from Wood Mackenzie states that tariffs on consumables such as imported steel, OCTG, cement, and drilling fluids result in near-immediate price increases that will see higher costs passed directly to operators.

According to Wood Mackenzie’s North American Cost Service, quarterly fluctuations will be more pronounced, with Q4 2025 drilling and completion costs rising 4.5% year-over-year due to tariffs. OCTG prices are expected to be 40% higher year-over-year in Q4 2025, adding 4% to total well costs.

However, annual increases are expected to remain flat in 2025 but will see a 2% increase in 2026 as tariffs are fully realized.

"Tariffs are creating significant cost pressures, particularly for consumable inputs like imported steel and OCTG," said Nathan Nemeth, principal analyst, Wood Mackenzie. “However, there is nuance to the story. While operators are facing inflated costs in some areas, much of this will be offset by deflation in other areas. Declining prices for proppant, drilling rig and pressure pumping are all areas that will yield lower costs this year, allowing operators to absorb most of the increases from tariffs.”

Rig count outlook shows decline
According to the report, Lower 48 rig activity is expected to gradually decline through 2025-2026, primarily driven by oil plays.

Wood Mackenzie analysis shows that oil rig count is projected to be 45–50 rigs below its April 2025 outlook, but a gradual rise in natural gas rigs will offset part of the drop, leading to a net decline of around 30 rigs from March to July 2025.

“Completion activity is set to rise in gas-driven regions, while oil-focused operators are expected to see declining activity levels if oil prices remain near US$60/bbl WTI,” said Nemeth.

The report concludes that uncertainty around US tariff policy could persist until 2028.

“While tariff-driven well cost inflation is undesirable, it is manageable,” said Nemeth. “However, broader economic weakness and lower commodity prices would force difficult decisions and activity reductions. The full impact is still unfolding, and we expect operators will work to offset these increases through efficiency gains and new technologies. The industry's ability to innovate will be key to maintaining competitiveness in this uncertain trade environment."

Editors Notes:
Wood Mackenzie’s North America Costs model generates comprehensive, bottom-up well cost estimates by integrating well design, operational efficiencies (e.g., drilling and pumping times), and current pricing for oilfield services and materials. These cost projections are supported by individual price forecasts for over 70 product service lines (PSLs) across five Lower 48 regions, enabling granular analysis of how specific pricing trends influence total well costs.