Shale Industry Faces Struggles as Oil Prices Hover Around $60

Oil production in the Permian Basin of Texas is rising, yet local businesses are feeling the strain as oil prices remain around $60 per barrel. Mark Waters, owner of Tie Specialties in Odessa, Texas, reports a 25 percent drop in sales of tools and safety equipment for oil firms over the past six months. With shelves stocked with essential supplies like wrenches and hard hats, Waters describes the situation as a “slowdown” and anticipates a challenging outlook for the coming years.

Despite the increase in overall U.S. oil output, which reached a record 13.9 million barrels per day this month, the economic health of oil-dependent towns like Midland and Odessa is deteriorating. Waters states, “Everyone I’ve talked to says the future is not very bright for the next couple of years.” As crude oil prices hover around $60, many producers are struggling to maintain profitability.

Impact of Rising Costs and Layoffs

The downturn is not just affecting local businesses. Major producers, including Chevron and ConocoPhillips, have begun layoffs, contributing to a national decline in oil and gas production employment, which dropped by 4,000 jobs from January to July, according to the U.S. Bureau of Labor Statistics. In Midland, the unemployment rate increased to 3.6 percent in August, the highest level since mid-2022.

Additional economic strain has resulted from rising production costs, exacerbated by inflation and trade tariffs. Kirk Edwards, president of Latigo Petroleum, highlights that drilling and completing a shale well now costs between $10 million and $12 million, an increase of 5 percent to 10 percent compared to last year. With oil prices remaining under $65 for a significant portion of the time since the Trump administration began, the industry faces unsustainable production levels without a shift in pricing.

Future Prospects and Industry Adjustments

As producers grapple with these challenges, the Permian Basin rig count has dropped by 52 to 252 at the end of October, marking the steepest decline since 2020. Denzil West, CEO of Admiral Permian Resources, which produces approximately 25,000 barrels per day, emphasizes that the economics of drilling have become “upside down,” with companies needing oil prices around $70 to sustain production growth.

A shift in operations is apparent, with companies like Surge Energy scaling back drilling activities while maintaining existing rigs. The demand for oilfield services is also declining. Terrel Hardin, president of King Well Service, reports that fewer rigs are in use compared to last year, stating, “There are more rigs than work.”

The situation is further compounded by changes in consumer behavior. Local restaurants and shops that cater to oilfield workers are experiencing reduced foot traffic as layoffs continue. Dulce Solis, manager of D.S. Fabela’s Restaurant in Odessa, notes that the lines are thinning as fewer oil workers can afford to dine out.

As the oil industry navigates these turbulent times, some individuals are seeking new opportunities. Yogashri Pradhan, who was laid off from Chevron, has started her own consulting firm, IronLady Energy Advisors, focusing on production data and reservoir engineering. She observes a heightened sense of urgency among industry professionals, stating, “We’re seeing a lot more panic at $60 oil.”

The current challenges in the Permian Basin reflect broader issues within the U.S. oil market, where producers face an increasingly difficult landscape. As the industry adapts to these conditions, the future remains uncertain, with many hoping for a rebound in prices to restore stability and growth.