US Shale to Slow Drilling as Trump’s Tariffs Rattle Executives

A Federal Reserve Bank of Dallas survey indicates that US shale executives expect to significantly reduce drilling activity in 2025 compared to initial plans, driven by lower oil prices and the rising costs associated with President Trump's tariffs. Nearly half of executives anticipate fewer wells, with tariffs increasing drilling and completion expenses by 4.01% to 6%, suggesting a potential deceleration in US oil production growth.

Analysis

A second-quarter survey from the Federal Reserve Bank of Dallas reveals a significant negative shift in the outlook for US shale activity in 2025. Nearly half of surveyed oil executives now expect to drill fewer wells than originally planned, a sentiment echoed by 42% of large exploration and production firms who anticipate a 'significant decrease.' This downward revision is attributed to a dual-pressure environment of lower oil prices eroding profitability and trade tariffs directly increasing operational costs. Specifically, executives report that tariffs have inflated the cost of drilling and completing new wells by a tangible 4.01% to 6%. This data provides a clear leading indicator of forthcoming capital discipline and a potential slowdown in US production growth, as companies react to margin compression by curtailing drilling programs.

Key Decisions for Investors

• The anticipated reduction in US shale drilling could constrain future supply growth, potentially providing a bullish tailwind for long-term crude oil prices; monitor weekly rig count data for early confirmation of this trend.
• Investors should scrutinize the cost structures and margin resilience of US-focused E&P companies, as the reported 4-6% cost inflation from tariffs will disproportionately affect firms with higher leverage or less efficient operations.
• A significant decrease in drilling activity signals weaker forward-looking demand for oilfield services (OFS) and equipment providers, suggesting a cautious stance or reduced exposure to OFS companies with high domestic US land market concentration.