Why US shale oil production is likely to see no upside this year?

US shale oil production is unlikely to experience upside as West Texas Intermediate crude prices stay pressured near the mid $60 per barrel. 

The accelerating unwinding of production cuts by the Organization of the Petroleum Exporting Countries and allies is adding further barrels into the market, weighing on sentiments. 

According to Rystad Energy’s estimates, US crude and condensate production is likely to grow by nearly 300,000 barrels per day on a year-on-year basis in 2025.

The US Energy Information Administration forecasts that US crude oil production is likely to decline from a record high of 13.5 million barrels per day in the second quarter of 2025 because of decreasing active drilling rigs and lower prices. 

Since the beginning of the year, the number of oil rigs has decreased in the US.

In contrast, gas rigs have been on an upward trend, though starting from a lower baseline.

Mukesh Sahdev, global head of commodity markets at Rystad said in an emailed commentary:

US shale needs contango more than a higher oil price, he said.

US stocks

The US Energy Information Administration (EIA) reported a 5.8-million-barrel draw in commercial crude inventories for the week ending June 20.

US commercial crude inventories are currently over 36 million barrels lower than last year, continuing their downward trend.

Over the next two weeks, this deficit is projected to stay mostly consistent, offering some support for WTI compared to global benchmarks.

However, by July 11, it is anticipated to shrink to approximately 26 million barrels below 2024 figures.

This could be bearish for oil prices again. 

Sahdev said:

Significant implications loom for Iran, China, Russia, and OPEC+. The primary focus is likely to be a supply correction until demand recovery shows improvement.

For trading to recover to prior levels, the ceasefire agreement between Iran and Israel must be robust.

“For now, signals remain uncertain, and geopolitical risks persist, keeping volatility high, even as some progress towards peace is made,” Sahdev noted.

Kazakhstan still overproducing

Meanwhile, the primary factor driving the OPEC+ shift in production strategy and the swift reversal of voluntary output cuts is likely Kazakhstan's overproduction.

Kazakhstan's oil and condensate production is projected to increase by approximately 6% in June, reaching 2.14 million barrels per day, according to the Kazakh Energy Ministry, as reported by Reuters. 

This rise precedes a crucial production decision anticipated in early July, with the overall situation remaining consistent.

Kazakhstan is set to produce considerably more than the agreed-upon amount for an additional month.

This is despite condensates being exempt from the production limits.

OPEC supply

“If, as a result, daily OPEC+ production is increased by a good 400,000 barrels for the fourth month in a row from August, there is a risk of a massive oversupply on the market by autumn at the latest,” Barbara Lambrecht, commodity analyst at Commerzbank AG, said. 

The Saudi Arabia-led group had been raising production by over 400,000 barrels a day since May.

This has complicated global oil balances and constantly pressured prices. 

According to Rystad Energy’s estimates, the market will not be able to absorb the production increases after the conclusion of the summer months in August. 

The same has been echoed by Commerzbank’s Lambrecht as well. 

In such a scenario, the price of WTI crude could suffer, and US shale production is unlikely to pick up further pace.