Domestic energy developments in 2025 appear to be influenced by a three-part recipe: one-part slower world economic growth, one-part increased OPEC+ oil production.
And one-part, “What the heck?”
“There is a massive amount of uncertainty right now because of trade policy,” said Kenneth Medlock III, fellow in energy and resource economics at the Baker Institute for Public Policy at Rice University, and senior director of its Center for Energy Studies.
Medlock thinks today’s lower price environment for oil will lead to a change in how investors value U.S. unconventional resources. That might be the biggest development to come out of the current energy scene.
Meanwhile, things aren’t normal, said Mukesh Sahdev, senior vice president, global head oil commodity markets for Rystad Energy.
“The year-on-year growth analysis of fundamentals has become largely irrelevant in 2025, as it is no longer a typical year” because of the U.S. administration’s tariff- and sanctions-driven approach, Sahdev noted.
This year started with an expectation of lower crude prices, mostly because of OPEC’s decision to lift production restrictions and China’s slowing growth. U.S. natural gas prices were projected to benefit from increased LNG exports.
Those basic realities haven’t changed much. The International Energy Agency forecast in May that global oil supply would increase by 1.6 million barrels per day this year, mostly because of OPEC+ easing its output restrictions. LNG shipments from the United States hit a record high for the first quarter of 2025, driven by European demand. Global economic growth slowed slightly from a year earlier.
Unconventionals’ ‘Dot-Com’ Turn?
But uncertainty and volatility went sky high, while the West Texas Intermediate crude price dipped below $60 a barrel. Travis Stice, CEO of Diamondback Energy, said that level wouldn’t work for U.S. unconventionals. Earlier this year, the Federal Reserve Bank of Dallas asked operators in its area what WTI price they needed to drill a new well profitably. They cited a general range of $61-$66 per barrel.
Stice noted, “We currently estimate that the U.S. frac crew count is already down about 15 percent this year, with the Permian Basin crew count down about 20 percent from its January peak, and both are expected to decline further.”
“We also expect the U.S. oil-directed rig count to be down almost 10 percent by the end of the second quarter and decline further in the third quarter. As a result of these activity cuts, it is likely that U.S. onshore oil production has peaked and will begin to decline,” Stice added.
Medlock said investors have started to change their view of unconventional resources fundamentally. In earlier years, profitability measures from the sector were considered dodgy, or at least sketchy. Operators typically tried to maximize hydrocarbon production and cash production, and the cashflow went back into drilling more wells to keep the cash coming.
“The (U.S.) energy industry got heavily tilted toward shale 15 years ago or so. It wasn’t really a return on investment business. It was a cashflow business,” Medlock noted.
“The corollary would be the dot-com boom of the 1990s,” he said.
Recently, those unconventional operators have been shifting their focus to profit instead of growth. Medlock said the current environment is more supportive of long-term value building, where “you move from that cashflow mindset to a more return-oriented mindset.”
According to the mid-May rig count report from Baker Hughes, the number of operating rigs has been declining in both the Texas and New Mexico Permian. Not only are companies dealing with higher costs and lower oil prices, they also face uncertainty about tariffs and the economic future.
“Any time uncertainty is introduced into any industry, you see a pullback in investment,” Medlock said.
“You can end up in the interesting situation where you may actually trigger” a short-term downturn because of the uncertainty, he added.
That could stymie domestic development until uncertainty lessens and the outlook becomes clearer. A rebound requires, “quite simply, a better understanding of what the economic environment looks like,” Medlock said. In some cases, he noted, industry goes through a period of low investment while uncertainty persists, “then investment can come back in a flood, leading to a boom of activity.”
“What you’ll see when you get softening on price is, you’ll see operators start to pull back. But if prices climb in the second half of the year, we’ll see rigs go back to work,” he said.
Innovation, Consolidation, Transition, Other Sundries
Medlock said one area of domestic development to keep an eye on is innovation in response to the industry’s current challenges.
“What sort of innovation will you see in the upstream sector? I know there’s a lot of work going on with proppants that could increase recovery,” he said.
“When we get into AI and data analysis, that’s a different kind of innovation. There’s a hyperfocus to capture those efficiencies when profits are squeezed,” Medlock observed.
In the United States, the energy industry has gone though an active period of mergers and acquisitions. Economic uncertainty could put a pause to the buying and selling, at least until the smoke clears.
However, “the healthier balance sheet firms will be looking to increase reserves, so in the second half of the year you could see some M&A activity,” Medlock said.
In other developments, actions by the Trump administration have already slowed the energy transition in the United States. But electric vehicles and renewable resources are still having an impact, and the transition continues to take place.
“The energy transition is happening, and it looks different everywhere, in every country. The one thing that is true is that global energy demand is going to grow,” Medlock noted.
Crude oil and coal may account for a notably smaller percentage of the world’s energy mix in 30 years. But that will be a percentage of a much larger demand number, so overall hydrocarbon production might decline little if at all.
India to the Rescue?
Possible negatives from the current U.S. and world energy situation include a worst-case scenario where drilling dries up and Chinese demand craters, according to Medlock.
“You can take the scariest picture, which is there’s no more efficiencies to wring out of the system. It’s perpetual decline, because nobody is out there drilling more wells to increase production,” Medlock said, although he called that scenario unlikely.
“The biggest surprise on the negative side is if the Chinese economy goes into the tank, because they are a large consumer of energy and they manufacture a lot of things people buy,” he added.
OPEC+ and China continue to have an outsized influence on domestic energy developments, OPEC as a major force on oil markets and China as a bellwether for world economic demand. But that might not always be the case.
Medlock said, “India is positioning itself for years of plus 5 to 7 percent growth. That means they are going to be needing a lot more oil, a lot more natural gas. More coal.”
He added, “It may be in a decade from now we find ourselves talking about the Indian economic miracle, not the Chinese economic miracle.”