US shale is not coming to the rescue. Don’t even think about it.
Yes, producers are hedging like crazy. Can you blame them? After going through a decade-plus oil bear market and oil prices are finally moving up, you think they will just sit there and let you rug pull that away from them?
Hell no. And what’s really funny about all of this is that none of these producers will increase capex.
Oil price spiking? Thank you for the extra free cash flow. I’m going to save it for a rainy day.
In the best case scenario, oil producers will be looking at these price spikes to think about spending more money on enhanced oil recovery. It’s not for drilling. No one is going to increase capex because of a geopolitical event. That’s crazy talk.
Imagine having an executive team present a revised capex budget to the board and the justification is:
We are at war with Iran so we need to do our part in supplying the world.
Where the hell was the patriotism when Trump’s team was talking about $50/bbl oil after the Venezuela event?
So again, no, US shale is not coming to the rescue. Throw that idea out of your head.
Fundamental Mismatch
US shale oil production has already matured. The growth phase is behind it.
At HFIR, we track US crude oil production on a real-time basis. And as you can see in the chart above, EIA has been lagging our production estimate since 2022. It wasn’t until late last year that EIA is now firmly above our estimate, which implies that US crude oil production is overstated.
The fact that US crude oil production hasn’t meaningfully broken above ~14 million b/d is a sign that it’s the ceiling.
Using our latest updated forecast for US crude oil production, if WTI holds at $70/bbl, we could see a scenario where US crude oil production rises to ~14 million b/d. If WTI averages $80/bbl, we could see ~14.5 million b/d, but that’s the absolute peak.
That represents growth of ~350k b/d to ~850k b/d from Dec 2025 volumes. That’s not a lot of growth left.
Knowing this fact, you can expect the energy executives looking at the oil price spike and thinking, how can we maximize our inventory today.
Does that entail drilling everything now? Hell no.
You keep your overall production decline profile low, slowly drill your best inventories, and continue to de-risk the reservoir. You don’t cowboy your way into an oil price spike thinking it will last forever; you have a business to run and board members to answer to.
So again, US shale is not coming to the rescue. It’s just not happening.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours.
Will OPEC's loss of earnings due to Hormuz being closed incentivize OPEC to maximum profit (cut back on supply), after Hormuz is eventually opened? Especially since tanker rates are now high (FRO).