As the United States prepares to ramp up shale oil production under the incoming administration of President Donald Trump, the global oil market faces a potential surplus that could reverberate across key oil-producing nations, particularly those within the Organization of Petroleum Exporting Countries (OPEC).
A resurgence in US shale production could disrupt the strategy OPEC has pursued in recent years to manage global oil prices and cause a major shift in the global outlook in 2025.
The US shale industry, which caused turmoil in the global oil market back in 2014 by triggering a price crash through oversupply, is now poised for a return to growth.
However, this time the drivers behind the expansion are markedly different as rather than pursuing production for production’s sake, the industry is focusing on shareholder returns, positive free cash flow, and improving environmental sustainability.
As the US shale patch grows, it aims to deliver substantial profits to investors, a stark contrast to the previous “drill, baby, drill” mentality that dominated the industry before the COVID-19 pandemic.
The shift in strategy follows years of capital discipline, efficiency gains, and an emphasis on financial sustainability.
Sarah Sheffield, an international energy analyst, said, “It has made huge progress in capital discipline and efficiency gains and is getting more bang for its buck. Priorities are now returns to investors and financial frames capable of withstanding oil price volatility.”
The US shale boom has redrawn the global oil map, especially in the Permian Basin, located in Texas and New Mexico, which now produces more oil than countries like Kuwait, Iraq, and the UAE combined.
This surge has made the US the world’s largest commodity producer, a title it claimed in 2018 and a net oil exporter since 2019.
As global demand for oil stagnates, US shale production is forecasted to continue its upward trajectory, with experts predicting that oil markets could experience a significant surplus in 2025.
According to the International Energy Agency (IEA), without any further changes in production from OPEC+, the oil market will see a surplus of 950,000 barrels per day in 2025.
If OPEC+ begins to unwind its production cuts as planned in April 2025, this surplus could balloon to 1.4 million barrels per day.
The increasing shale supply could keep oil prices under pressure, particularly with OPEC+ member nations, who are accustomed to managing market volatility through production cuts.
The US, with its newly consolidated, larger companies, is now a major player in the global oil market. The industry’s emphasis on financial discipline and output efficiency has left OPEC countries scrambling to maintain market share and support prices.
In 2024, major shale producers like Chevron are reducing their capital expenditures on the Permian Basin as part of a strategy to prioritize shareholder returns over production growth.
Chevron’s anticipated upstream spending in 2024 will amount to $13 billion, with a large portion earmarked for its US portfolio.
Despite a reduction in active drilling rigs over the past two years, the US shale sector has continued to grow, with new completions offsetting the decline in existing wells, according to the US Energy Information Administration (EIA).
The ongoing resurgence of US shale production presents significant challenges for OPEC and other oil producers worldwide.
The supply glut that occurred in 2014 due to the shale boom that sent oil prices plummeting is on the horizon as the US shale sector shifts its focus from volume production to sustainable profits and market efficiency.
Daniel Yergin, vice-chair of S&P Global and a renowned energy historian, stated, “Shale has redrawn the map of world oil in a way most people don’t seem to understand. It has changed not only the supply-demand balance but it has changed the geopolitical balance and the psychological balance.”
