MW The U.S. is producing record amounts of oil - and putting profits at risk

By Myra P. Saefong

Crude prices have already dropped to break-even levels for some producers

U.S. crude-oil production has reached fresh record highs.

U.S. oil prices have dropped more than 15% so far this year to levels that could threaten the ability of smaller producers to earn a profit. And that's even before factoring in forecasts that could see the biggest global supply surplus on record next year.

Yet that hasn't slowed domestic production of crude, which has climbed to fresh all-time highs, and could risk even lower oil prices in the months ahead.

The oil market is "reaping the benefits of significant efficiency gains," Angie Gildea, KPMG U.S. energy lead, told MarketWatch. Even though there's been a decline in the number of active rigs drilling for oil, production is still there, she said. Technological advancements have helped companies produce more with fewer rigs and resources.

The number of active U.S. oil rigs has fallen by 65 so far this year, with the weekly count down by six, to 414 rigs as of Oct. 31, according to data from Baker Hughes Co. (BKR).

Despite that, U.S. oil production edged up to a new record high of 13.651 million barrels per day (bpd) for the week ending on Halloween, according to data from the Energy Information Administration released Wednesday.

Separately, the latest monthly data released by the EIA at the end of October revealed that August production was at a record high of 13.794 million bpd.

Monthly U.S. crude-oil production climbed to a record high of 13.794 million barrels per day in August.

Some energy analysts see a break-even price for U.S. oil producers - the price needed to cover output costs - in the low $60s, and U.S. prices have already fallen to those levels; but that break-even price could also be at around half that for some producers. Certain regions and wells have a break-even cost as low as $30 a barrel, according to Tim Holland, chief investment officer at wealthtech provider Orion.

Many companies have "built-in resiliencies," so they are relatively protected from short-term price fluctuations, said KPMG's Gildea. Assuming oil prices hold where they are, "the scale supermajors have achieved has put them in a position to continue producing at current levels," she said.

Overall, however, U.S. benchmark West Texas Intermediate crude (CL.1) has lost nearly 16% so far this year as of Monday. On Wednesday, the December contract (CLZ25) traded below $60 a barrel for the first time in two weeks.

Prices would need to "plunge to a point that they cause such economic pain that producing wells are not economically viable," otherwise most companies will continue to pull crude and natural gas from the ground, while also looking to "lower costs and improve operating efficiencies where they can," said Orion's Holland.

Oil exploration and production firms need a WTI oil price of anywhere from $26 to $45 a barrel to cover operations expenses for existing wells, according to the results of a survey conducted by Federal Reserve Bank of Dallas published in September. Break-even prices for new wells ranged from $61 to $70 a barrel, according to the survey.

However, "it isn't what a barrel of oil fetches on the market that matters to producers," Holland told MarketWatch. "It is the cost to pull the next barrel out of the ground that matters," he said. "That is what tends to drive capital allocation decisions for oil companies."

For U.S. producers to significantly slow production, there would need to be an environment of sharply lower demand and sharply lower prices than where we are today, he said.

For U.S. shale companies, a sustained time period of sub-$50 prices would make it very difficult for most to drill profitably, said Gildea. Even so, many of the major producers have significant production scale in places like the Permian Basin, which includes West Texas and southeastern New Mexico, and they operate at much lower break-even costs now, "making them more resilient to short-term price fluctuations," she said.

Typically at lower prices, the rational choice from U.S. shale producers is "restraint, not expansion," said Gildea. "Their mantra is capital efficiency and balance-sheet strength."

Many oil companies, such as Exxon Mobil Corp. (XOM) and Chevron Corp. $(CVX)$, announced better-than-expected third-quarter earnings but some, such as Chevron, have announced reductions in their investment plans.

Low prices affect investment decisions, not production decisions, said Anas Alhajji, an independent energy export and managing partner at Energy Outlook Advisors.

As investment declines, production might decline, too, he said. Oil and gas fields could become less efficient, causing them to produce less. If prices decline below operating costs, as was seen in 2020, production in some wells will stop, but "we are far from that now." WTI oil prices on April 20, 2020, during the COVID-19 pandemic, marked their first-ever negative price settlement, pressured by a drop in demand and a growing glut of crude.

Besides, projects in the Gulf of Mexico, which the U.S. now calls the Gulf of America, will take years to finish. "They have long lives, and short-term fluctuations in prices do not effect the decision to produce," said Alhajji.

Simon Wong, portfolio manager at Gabelli Funds, pointed out that some offshore projects in the Gulf of Mexico were started a year or two ago when crude prices were higher.

And when crude prices spiked higher earlier this year, some shale operators hedged at the higher prices to bring on new production, he told MarketWatch.

Given that, he expects U.S. production to climb a bit higher, but WTI prices are at around $60, which he believes is break-even price for shale producers. Shale oil production may "start leveling off toward the end of the year or early part of next year," said Wong.

The first quarter is typically a seasonal weaker demand period, "leaving aside the demand uncertainties related to global GDP growth," he said. "With the excess supply and weaker demand, yes - prices should go lower."

-Myra P. Saefong

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November 05, 2025 16:23 ET (21:23 GMT)

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