OIL PRICE PURGATORY. The Energy Report 10/02/2025

Oil prices are locked in a purgatory-like trading range where OPEC seems to want to keep prices in this range of pain —high enough for them to make money but low enough to squeeze US shale.

OPEC production increase rumors were quickly denied by the cartel, but one wonders about the timing of OPEC leaks that seem to keep coming at price levels that could, in theory, unleash US shale.

This comes as we get different narratives, like the Energy Information Administration (EIA) report, showing a weekly increase in US oil output against a backdrop of the Texas Railroad Commission showing a sharp drop in US production and production expectations, and warnings from US shale producers that this oil price purgatory is not conducive for investment as these prices are creating innovation stagnation.

While the Energy Information Administration yesterday reported that U.S. oil production increased week over week, reports that shale oil producers putting on the brakes are raising concerns about a peak in US oil production. Petroleum engineer Doug LoPachin is raising concerns, warning because he says that, in reality, U.S. oil production has declined by 12% from October 2024 to June 2025, saying that should be the oil market headline. He says that, “The EIA, which all the traders watch, have projected from surveys US peak production in August of 2025 and have never mentioned that Texas production is in decline. The oil business and infrastructure all stem from the oil price. Even some of the banks refer to the EIA reports, which are putting numbers out that are not capturing the drop in Texas and Permian Basin production drops.”

He says to get accurate numbers, look at the Texas Railroad Commission data. While he points out that July hasn’t adjusted, October 2024 was the peak, and from that peak to June 2025 there has been a 12% decline. Texas is the leading producer—as Texas goes, so goes the nation. Hence, he says that U.S. oil production is declining at a 12% rate from October 2024 through June 2025.

For more evidence of a US oil production plateau, check reports such as Diamondback’s CEO saying that he expects U.S. crude output growth to stall with oil at $60/bbl, noting production has already slowed and is declining. With crude futures at $61.50, producers receive $58.00 or less per barrel.

He reports that due to lower prices and higher costs, many energy companies are cutting jobs: ExxonMobil will lay off 2,000 employees, Chevron may cut up to 20% of its staff, and ConocoPhillips is reducing its workforce by 20–25%. Diamondback stated that Permian shale output is near its price-driven peak and reduced 2025 capital spending by $500 million to $3.5 billion, warning that unless prices go up, then prices are at critical mass.

There are also some folks trying to sell us on the coming oil glut that, if true, could absolutely crush US shale oil production. Bloomberg is reporting that, “Unsold Middle Eastern crude cargoes from the recently wrapped up trading cycle are pointing to early signs that an expected global oil surplus could be starting to emerge. The volume of unsold oil set to be loaded in November ranged from 6 million barrels to 12 million barrels, according to estimates from traders. Weaker-than-expected Chinese demand and OPEC+’s push to continue returning idled output are weighing on the market, traders said according to Bloomberg. There is also talk of oil going into floating storage at a high rate, maybe not seen since COVID.

While these stories are compelling and must be watched, it is, after all, shoulder season. What is shoulder season? Call phil Flynn 888-264-5665 and we’ll discuss it. China demand headline being weak does not fit the headlines of China. The China stockpiling is expected to continue at 530,000 barrels a day through 2026, reporting higher imports. The weak demand scenario doesn’t fit either with the fact that despite a drop in US exports this week, for the last couple of weeks in the EIA reports we have seen near record exports of U.S. oil.

So to say I’m skeptical of the plot is probably an accurate way to describe it. It’s easy to see a glut when demand is low seasonally; we’ll see how the so-called glut works if we get a cold winter, and already there are reports that this beautiful summer-like weather that we are having today is going to flip-flop on us and get very cold on the back end.

The market performance yesterday was notably poor, influenced in part by concerns over a government shutdown as well as a negative weekly inventory report, but really a report that was weak due to normal seasonal changes and the march into refinery maintenance.

During the week ending September 26, 2025, U.S. crude oil refinery inputs averaged 16.2 million barrels per day, marking a decline of 308,000 barrels per day compared to the previous week. Refineries operated at 91.4% of their operable capacity for the period. Gasoline production also declined, averaging 9.3 million barrels per day, while distillate fuel production saw a modest decrease of 25,000 barrels per day to average 5 million barrels per day.

Crude oil imports into the U.S. averaged 5.8 million barrels per day last week, reflecting a reduction of 662,000 barrels per day from the prior week. Over the last four weeks, imports have averaged approximately 6.1 million barrels per day—7.5% lower than in the same period last year.

U.S. commercial crude oil inventories rose by 1.8 million barrels to 416.5 million, about 4% below the five-year average. Gasoline inventories increased by 4.1 million barrels to meet the five-year average, while distillate stocks grew by 600,000 barrels but remain 6% lower than average. Propane/propylene inventories rose by 3.5 million barrels, standing 13% above average. Overall, total petroleum stocks climbed by 6.4 million barrels last week.

On the demand side, total products supplied over the past four weeks averaged 20.3 million barrels per day, up 1.2% year-over-year. Gasoline supplied was down 0.5%, distillate fuel dropped 4.4%, and jet fuel fell by 3.3% from the previous year.

Natural gas hit some upper resistance to pause its impressive counter-seasonal rally. It’s about heat today and cold tomorrow’s raising demand expectations amid expectations of record LNG exports. Today we get the EIA and this injection will be critical for the next leg higher or, if we see a high injection, lower. The average guess is 66 bcf.

On top of that, we have an active Atlantic. Fox Weather is warning that we may be entering the final weeks of the 2025 Atlantic hurricane season, but tropical activity is still possible as the National Hurricane Center (NHC) monitors two new areas for possible development. The first area of interest is in the central tropical Atlantic between Africa and the Caribbean islands, while the second area is near Florida—an area to watch for development in the central tropical Atlantic.

The NHC highlighted an area off the coast of Africa and stretching to the Caribbean where tropical development is possible over the next week. However, forecasters caution that there are conflicting signals on whether the disturbance in the area will ever become organized. The energy that is expected to make up the tropical wave is forecast to leave the coast of Africa by Friday before traversing the Atlantic over the next couple of weeks. Due to how much organization the tropical disturbance will need, quick intensification is not expected over the next week, despite warm sea-surface temperatures. So far, the NHC is simply going with a low chance of development within the next seven days.

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