It’s a million degrees outside and I want to get home on this last Friday of May so I am going to keep it short today. Pithy. To the point and waste no one’s time.

 

Originally, I was going to do a re-write of the Speech from the Throne so I could heap scorn on the newbie Mark Carney government before they take off on summer vacation, but then I decided that instead of finding the speech mock-worthy, I actually enjoyed all the pomp and ceremony and just general regal weirdness of it all – so much so that I barely paid any attention to the content, wrapped up instead in thoughts about what has happened over the past 1000 some-odd years that a democratically elected government 5000 km from the throne benefits from an old guy wearing a fur suit and a crown, clutching a sceptre reading a speech he didn’t even write. Plus I understand that if you make fun of the king, you can be locked up in the Tower of London, so there’s that.

 

Besides, the whole speech was really for an audience of one, on that we can all agree. And I am pretty sure that the individual in question paid attention, since it didn’t take long afterward for a 51^st state tweet to emerge, even if by Donald Trump standards, it was pretty innocuous.

 

Speaking of Mr. Trump – I could indeed have written yet again about tariffs, since they are so topical and I do hate them so very much. And on Wednesday (as well as Thursday) there were some court rulings that delayed the tariffs and declared the orders implementing them unconstitutional. Look, I may have thoughts on that but as much (or less) influence over that as the magpie that just landed on my windowsill has on my choice of tea.

 

But it didn’t matter, since towards the end of the day on Thursday another court ruled that pending the appeals, the tariffs were still in place. So, the tariffs that had yet to be imposed were temporarily delayed only to be reinstated and ready for implementation at a later date. Maybe.

 

What’s a guy gonna do with all that? I think a person I follow on X said it best:

 

Trump’s tariffs exist in a quantum state – they’re both real and imaginary, in place but cancelled, just on some goods but also all of them, simultaneously 10%, 50% & 125%, just a tactic but still a good idea.

 

Use your imagination, the tariffs are whatever you want them to be.

 

And that feels correct. The tariff policy is chaotic and uncertain. It may or may not serve a purpose. It may or may not work. It really bothers me, because I am free-trade loving tariff-hating kinda guy. But other people love them because it just makes sense to pay more for less selection, especially if you can stick it to those America exploiting poor people in Lesotho.

 

So then what to write about? Well, it turns out that there are other policies in the Trump administration that are beginning to feel real-world impacts.

 

And it’s related to a subject that I hold near and dear to my heart. That’s right. Oil.

 

I was recently reminded that I have slacked off on my oil coverage duties, having been so subsumed by tariffs and the Canadian election that changed nothing.

 

But thankfully Facebook has been reminding me almost every 15 minutes about the imminent return of Tommy Norris and the Landman crew. And when not debating the weighty matters of our time like is Ali Larter’s Angela Norris an over the top caricature of the oil-country trophy wife or a scathing indictment of a male-dominated culture that objectifies women, we of course turn our attention to the Permian basin and ask ourselves the following question:

 

Will the Landmen and drilling and fracing crews of this world actually have any capital and need to drill for any of that sweet, sweet oil that is the lifeblood of West Texas?

 

It’s a fair question. Oil prices have been in a funk since tariff-mania began and OPEC+ started screwing around with their own production quotas. Donald Trump and his administration want low gas prices to contain tariff-induced inflation but also, conflictingly want to unleash drilling to become an energy superpower. Seems like it should make sense – higher US production will reduce prices at the pump, right? Sure but over-production craters commodity prices and break-evens are in $60 range. SO when prices are in that range, drilling slows down. See the problem?

 

So here we are, time for the regular check-in on whether US production is about to tip over and what can be done about it.

 

Actually, let me rephrase that.

 

With the impact of tariffs slowing down the economy and OPEC+ in the middle of the big unwind of their voluntary cuts in order to get the cheats in line, oil prices have been under tremendous pressure, such that they have dropped regularly below the Mendoza line of drilling. Put another way, prices below $60 make Permian drillers reassess plans or simply put them on the shelf.

 

Rigs are being parked, crews are slowing down. The Trump policy of Drill Baby Drill is in actual, real trouble and with high decline rates, it’s not a question of “will” US production tip over. No, the question is “when” will it tip and “how low will it go” and, finally, “how long will it last”.

 

You can’t bully oil guys into drilling when there is no money to be made – you can only trick them with cheap capital. And right now, there is no cheap capital. So drilling is slowing – materially.

 

Current production is about 13.5 million boepd. To all of us who watch the weekly data, this feels overstated and with the flashing red lights we are seeing, it’s only a matter of time until weekly downward revisions come in hard and fast. Not COVID level declines, but enough to make some execs reach for the pepto.

 

(Side note – this is not a demand commentary, or a supply side Hubbert’s Peak thesis. It is merely an observational interpretation of some data, and one possible scenario.)

 

Given all of this, the next 12-18 months are going to be pretty important for oil production  and understanding what the downsiude might be given all the variables is a useful exercise. No matter where you sit.

 

Predicting the downside production level for U.S. oil and gas over the next 18 months (through late 2026) is complex, as it depends on rig counts, frac spreads, drilled but uncompleted wells (DUCs), commodity prices, capital discipline, and global demand.

 

Let’s look at some available data:

 

 

Current Trends in Rig Counts and Frac Spreads

 

• Rig Counts:
  • As of April 2025, the U.S. total rig count (oil and gas) was 583, down 34 rigs (6%) from the previous year, with oil rigs at 480 (down 26 year-over-year) and gas rigs at 97 (down 12).
  • Recent data indicates a continued decline, with oil rigs dropping to 484 in late May.
  • Permian well permits down 22% year-over-year and rig counts at their lowest since late 2022, signaling reduced drilling activity.

 

• Frac Spreads:
  • Frac spread counts, which track crews completing wells, have also declined. Primary Vision reported 205 frac spreads in early April 2025, down from 209 the prior week and 232 at the start of 2024.
  • Frac spreads are a leading indicator of production, as they reflect completion activity. A decline in spreads typically leads to reduced production with a lag of 3–6 months.

 

• Drilled but Uncompleted Wells (DUCs):
  • DUC inventories are at historic lows, around 4,500 wells in late 2024, compared to 8,000 in 2020.
  • Low DUC inventories limit the ability to boost production without increasing rig counts, as operators have less “ready-to-complete” well inventory. Ad as per above, rig counts are declining.

 

• Production:
  • S. crude oil production peaked at 13.7 million barrels per day (bpd) in December 2024 but fell to 13.458 million bpd by April 2025.
  • The EIA (and IEA) projects crude output to rise modestly to 13.5 million bpd in 2025, but this assumes stable or slightly increasing activity and higher prices, which is contra-indicated by the actual commodity, drilling and frac’ing data. Or as I like to say – someone has gotten into the edibles.

 

Factors Driving Production Down

 

• Declining Rig and Frac Spread Activity:

 

• The correlation between frac spreads and production is strong; a sustained decline in frac spreads (e.g., 10% year-over-year) suggests production could drop by 300,000–400,000 bpd in the near term.
• Reduced rig counts, especially in key basins like the Permian means fewer new wells, further constraining future output.

 

• Capital Discipline and Market Dynamics:
  • S. operators are prioritizing shareholder returns and debt reduction over aggressive production growth, limiting new drilling and completions.
  • Lower oil prices (current sad-sack price deck and OPEC+ influenced) reduce incentives for drilling, particularly in marginal fields.

 

• Depleting DUCs and Efficiency Limits:
  • With DUCs at a 10-year low, operators must increase drilling to maintain production, but rig count declines suggest this isn’t happening.
  • Efficiency gains (e.g., longer lateral wells) have plateaued, and well productivity is declining in some basins, reducing output per rig.

 

• Regional Variations:
  • The Permian Basin, which accounts for ~50% of U.S. oil production, is seeing equipment shifts from gas to oil, but overall activity is down.
  • Other more mature basins like the Bakken and Eagle Ford need faster rig additions to replace depleting DUCs, but it’s not happening.

 

• External Pressures:
  • Geopolitical risks, trade tariffs, and weaker global demand (Trump’s tariffs!) could suppress oil prices, further discouraging activity.
  • Notwithstanding that the new administration isn’t hugely into protecting the environment, local people are and environmental regulations and, in particular, water contamination issues in shale basins may also limit production growth.

 

How Low Can it Go?

 

Given the downward trajectories in rig counts and frac spreads, alongside low DUC inventories and capital discipline, the downside production level for U.S. oil can be estimated as follows:

 

• Crude Oil:
  • Current Production: ~13.458 million bpd (April 2025).
  • Downside Scenario:
    • A sustained 10% decline in frac spreads (from 205 to ~185) and rigs (from 480 to ~430) could lead to a production drop of 300,000–500,000 bpd over 12–18 months, assuming no significant price recovery or policy changes.
    • Wood Mackenzie’s forecast aligns with this, predicting a decline in Lower 48 production due to reduced drilling and rig shedding.
    • Estimated Range: 12.9–13.1 million bpd by late 2026, a 3–5% decline from current levels. This assumes no major disruptions (e.g., geopolitical events or severe weather) and continued capital discipline.

 

Some Assumptions and Upside Risks

 

• Assumptions:
  • WTI prices remain range-bound (~$55–$65/bbl), insufficient to spur significant rig additions.
  • DUC inventories continue to decline, forcing reliance on new drilling, which is constrained by rig count trends.
  • No major technological breakthroughs (e.g., widespread electric frac adoption) significantly alter efficiency in the next 18 months.
• Upside Risks:
  • A spike in oil or gas prices could prompt operators to deploy more rigs and frac spreads, mitigating declines. Maybe a nice bombing campaign on nuclear facilities in Iran.
  • Advances in completion techniques (e.g., simulfracs, electric fleets) could improve efficiency, supporting production.
• Downside Risks:
  • Further rig and frac spread reductions (e.g., to 400 rigs and 150 spreads) could accelerate declines, pushing oil production below 12.5 million bpd.
  • Global peace (ha!)
  • Tariffs drop (ha!)
  • OPEC (see below)

 

 

So…

 

The baseline downside production level for U.S. oil over the next 18 months assuming current status quo is estimated at 12.9–13.1 million bpd (down 3–5% from April 2025’s 13.458 million bpd), driven by declining rig counts and frac spreads, and low DUC inventories.  Status quo means these estimates assume continued capital discipline, stable or declining commodity prices, and no major external shocks.

 

But wait, there’s more. The above analysis doesn’t really take into account the genius OPEC plan of adding 800,000 additional barrels of production before the end of the year, rampant cheating, any potential Iran deal and anything remotely approaching a cease-fire or fake peace in the Russian war against Ukraine.

Incorporating the OPEC+ addition of 800,000 boepd, the U.S. production outlook worsens due to lower prices and reduced drilling activity:

 

• Revised Downside Scenario:
  • The 800,000 boepd increase (primarily crude oil) could push Brent prices to $55–$60/bbl and WTI to $50–$55/bbl by mid-2026, making 20–30% of U.S. shale wells uneconomic.
  • Rig counts could drop to 400–430 (a 10–15% further decline) and frac spreads to 170–185 (a 10–15% further decline), reducing new well completions by 15–20%.
  • With low DUCs, production could fall by 600,000–800,000 bpd, as operators scale back in high-cost basins like the Bakken and Eagle Ford.

 

So, the revised downside is about 12.6–12.9 million bpd by late 2026, a 4–7% decline from 13.458 million bpd.

 

It’s not pretty. I have long predicted that the Permian and the LTO frenzy was approaching that time where no more significant growth like we have been accustomed to is going to happen. It really feels like in the current environment we are at the confluence of events to make that happen.

 

And it’s not happening like a “Big Bang”, it’s going to be that helium balloon you have in the garage, left over from the kid’s birthday that slowly, gradually loses gas and buoyancy such that one day you look at it and notice it’s flat on the ground.

 

A 5% or 7% decline doesn’t seem like a big deal until you realize how much work and time is involved in adding back 800,000 barrels a day of production. It might take another 2-3 years to recover at which point we are in 2029-2030 range when the first credible forecasts are starting to predict that global demand may finally start peaking.

 

Sure, there will still be massive drilling, but the activity levels required to sustain these production levels are already pretty robust and with tariffs affecting everything from steel to electronics, costs are going to inevitably going to rise, putting further pressures on breakevens.

 

Again, recovering those lost barrels in any similar time frame in which they were lost feels near impossible. The growth is going to have to come from elsewhere.

 

Maybe Canada, if anyone wants to build us a pipeline or two.

 

So, not really the best outcome for Tommy Norris, but at least he can go home to crazy Angela. For the rest of the Permian, it’s going to be a hard few years re-orienting the industry yet again.

 

Drill Baby Drill is a great slogan – until it meets the reality of the market.