US shale unlikely to replace Middle Eastern oil, industry players and analysts warn

The shale industry cannot increase production rapidly enough to replace any supply disrupted as a result of the conflict in Iran in the near term, according to warnings from both industry participants and analysts. Indeed, a significant enough rise in shale output would take months to materialise, those sounding the warnings have said.

This week, the Financial Times quoted Scott Sheffield, the former CEO of shale giant Pioneer Natural Resources, which was taken over by ExxonMobil in 2024, as saying shale producers would be hesitant to ramp up drilling unless they were sure higher oil prices would last. This comes after crude prices hit an 18-month high this week, with Brent trading close to $83 per barrel while West Texas Intermediate (WTI) rose above $76 per barrel as of March 5. However, shale drillers have demonstrated caution regardless of how oil prices are behaving in recent years, and the situation in Iran appears unlikely to change this, at least in the short term.

“It’ll just give them extra cash flow,” Sheffield was quoted by the Financial Times as saying. “They can reduce debt. They can do buybacks. They can pay dividends,” he continued. “But once the war ends, then it’s gonna fall back pretty quickly,” Sheffield said.

“Also, you got to remember the companies are running out of [drilling] inventory,” he continued. “I do not anticipate anybody adding any rigs.”

The conflict is disrupting both production in the Middle East and oil and LNG tanker traffic in the Strait of Hormuz. According to the Financial Times, the International Energy Agency (IEA) met to discuss the crisis on March 3 and circulated a document describing US shale as the “most significant” source of near-term output to offset any shortfall resulting from the disruption in the Middle East. The newspaper reported that in particular, supply could rapidly come online from recently drilled but not yet completed wells. The agency is reported to have estimated that such wells could add 400,000 barrels per day (bpd) in the second half of the year, with 240,000 bpd in May.

However, exports from the Persian Gulf region amount for 20mn bpd and the Strait of Hormuz accounts for roughly 25% of global seaborne oil trade, according to the IEA. While US production is currently at a record high of around 13.6mn bpd, with shale accounting for much of this, it is currently projected by the US Energy Information Administration (EIA) to stay flat this year and decline in 2027. While the EIA’s forecasts are due to be updated next week, it would be surprising to see any major change to these figures just yet.

The Financial Times went on to cite analysts and other industry executives as echoing Sheffield in saying any meaningful change in shale production would take time to materialise, even at higher prices.

“US shale could respond, but incremental supply would require several months given drilling, completion and infrastructure lead times,” a JPMorgan analyst, Natasha Kaneva, wrote.

Meanwhile, independent Permian Basin producer Latigo Petroleum’s president, Kirk Edwards, was quoted as saying it was too early to see any new investment as a result of developments in the Middle East.

“What Permian producers need in my opinion is a stable $75 [per barrel] price … over the next 12 months,” Edwards was quoted as saying.

And investors echoed a similar note of caution, with Smead Capital Management’s CEO, Cole Smead, saying producers were “distrustful of the sentiment around the price of oil perceived by market operators and the rhetoric of the politics”.

Shale drillers’ caution should come as no surprise to anyone closely observing the industry over recent years. Indeed, shale producers maintained their capital discipline when oil prices spiked in 2022 following the start of the war in Ukraine. They would have to be more certain of the long-term impact of the conflict in the Middle East on oil prices before proceeding with any new plans to add rigs.