Higher oil prices could revive U.S. shale drilling in 2026, Citi says

(Bloomberg) – Higher oil prices driven up by the conflict in the Middle East stand to push some of America’s biggest shale producers to start adding drilling rigs in the second half of this year and more than 100,000 bpd of increased output by 2027, according to Citigroup Inc. 

When combined with an even more robust expansion from private operators and the existing growth plans from some oil majors, U.S. shale could add about 815,000 bpd of crude to the global market through 2028, Scott Gruber, an analyst at Citi, wrote Friday in a note to investors.

So far, no producer has publicly said it plans to ramp up output in response to the Iran war, which has crippled supplies from the Persian Gulf. The bank’s heightened view on shale growth is largely due to the so-called forward curve, which tracks future prices of oil over the next few years. Those prices are trading at $70 a barrel and higher. 

Before the war, fears of a global crude glut were forcing oil prices down to about $60 and below, threatening profit levels for most shale companies.

“The prior curves had been signaling a doldrums type of environment in which the global markets were structurally oversupplied, and no additional demand was evident,” Gruber wrote. “Well, not anymore.”

If the price curve holds for another few months, the bank’s “upside spending scenario” sees public producers adding about 20 drilling rigs and the private producers adding another 47 machines. But Gruber adds that Citi doesn’t expect the activity growth to be announced in the upcoming round of earnings calls, which begin next month.