U.S. Oil Rig Counts and the Impending Global Glut: Strategic Opportunities in a Shifting Energy Landscape

The U.S. oil and gas sector is navigating a complex landscape in 2025, marked by declining rig counts, historically low oil prices, and a global supply surplus. Despite these headwinds, top-tier operators like EOG Resources and Diamondback Energy (FANG) are leveraging operational efficiency, disciplined capital allocation, and strategic asset management to maintain resilience. This analysis explores how these companies are positioning themselves amid forecasts of oversupply and evaluates their investment potential in a market increasingly defined by stability over high-growth trajectories.

The Rig Count Dilemma: Efficiency Over Expansion

The U.S. oil rig count, a key barometer of industry activity, has remained subdued in 2025, with active rigs declining by 33 year-over-year to 548 as of December 12. This decline reflects a broader industry shift toward efficiency rather than sheer scale. For instance, the Permian Basin-a cornerstone of U.S. production-maintains 251 active rigs, yet its oil output has surged by 18% since December 2022 despite a 29% drop in rigs. Similarly, the Appalachian Basin has seen a 10% rise in natural gas production amid a parallel reduction in rigs. These trends underscore the transformative role of technological advancements, such as longer laterals and improved completion techniques, which enable operators to achieve record output with fewer rigs.

The U.S. Energy Information Administration projects that crude oil production will dip by 0.1 million barrels per day (1%) in 2026, with West Texas Intermediate (WTI) averaging $51 per barrel. This forecast signals a continuation of the capital discipline adopted by operators, who are prioritizing cost control and inventory management over aggressive expansion. Completion crews, currently at 173, are strategically timing production to align with favorable market conditions, further optimizing service costs.

EOG Resources: Resilience Through Efficiency and Shareholder Returns

EOG Resources has emerged as a standout performer in 2025, demonstrating robust production growth and cost discipline despite volatile oil prices. In Q2 2025, the company reported adjusted earnings per share of $2.32, exceeding expectations, while generating $973 million in free cash flow. Its total crude oil equivalent production reached 1,134.1 thousand barrels of oil equivalent per day (MBoed), an 8.3% year-over-year increase, driven by efficiency gains in the Permian and Eagle Ford basins.

EOG's operational costs of $9.94 per barrel of oil equivalent (Boe) highlight its cost leadership, a critical advantage in a low-price environment. The company has also trimmed its capital budget by $200 million in response to softer oil prices, focusing on high-return projects and maintaining a negative net debt position. Shareholder returns remain a priority, with $1.1 billion returned through dividends and buybacks in Q2 2025. EOG's strategic flexibility-coupled with its disciplined approach to capital allocation-positions it to navigate 2026's projected price declines and global oversupply.

Diamondback Energy (FANG): Capital Discipline and Operational Excellence

Diamondback Energy, trading under the ticker FANG, has adopted a similarly rigorous strategy to weather the 2025-2026 market challenges. In Q3 2025, the company reported operational costs of $10.05 per Boe, with a capital allocation framework that returns 50% of adjusted free cash flow to shareholders. This approach has enabled Diamondback to return $892 million to investors in Q3 2025 alone, including $603 million in share repurchases.

The company's efficiency metrics are equally impressive. With an average spud-to-total depth time of 8.19 days and well costs per lateral foot matching 2020 pandemic-era levels, Diamondback has optimized its drilling and completion processes. Strategic asset sales, such as the $504 million divestiture of its EPIC Crude Holdings stake and the $694 million sale of Environmental Disposal Systems, have further strengthened liquidity and reduced debt. As of Q3 2025, Diamondback reported a long-term debt-to-equity ratio of 40.54%, reflecting its commitment to maintaining financial flexibility.

Strategic Positioning in a Downturn-Prone Market

Both EOG and Diamondback are aligning their strategies with the EIA's 2026 outlook, which anticipates Brent crude averaging $52 per barrel and global oil inventories growing by over 2.6 million barrels per day. EOG has signaled "no-to-low" production growth for early 2026, prioritizing market stability over incremental supply. Meanwhile, Diamondback has set a baseline production target of 510,000 barrels per day, emphasizing efficiency and free cash flow generation.

These strategies reflect a broader industry trend: Permian Basin producers are increasingly valued for their stability and yield rather than aggressive growth. In a market where capital discipline and operational excellence are paramount, EOG's negative net debt and Diamondback's returns-first approach provide a competitive edge.

Investment Implications

For investors, the key differentiator in 2026 will be the ability of operators to sustain margins amid shrinking price differentials. EOG's cost leadership and Diamondback's disciplined capital returns position them as low-risk, high-margin plays in a sector grappling with oversupply. EOG's recent acquisition of Encino Acquisition Partners for $5.7 billion also signals confidence in its long-term operational efficiency, particularly in the Utica basin.

However, risks remain. The EIA's forecast of a 1% decline in U.S. crude production in 2026 suggests that even top-tier operators may face margin compression. Investors should monitor how EOG and Diamondback adjust their capital expenditures and production guidance in response to mid-2026 price trends.

Conclusion

The U.S. oil sector's shift from rig-driven growth to efficiency-led production has created a new paradigm for investment. EOG Resources and Diamondback Energy exemplify how top-tier drillers can thrive in a low-price, oversupplied environment by prioritizing cost control, shareholder returns, and strategic flexibility. As global oil markets brace for further volatility, these companies offer a compelling case for investors seeking stability and resilience in a shifting energy landscape.