Rig Cutdowns Signal a Bullish Turn for Crude Prices by Late 2025

The U.S. oil rig count has fallen to its lowest level since late 2021, with the Permian Basin's rig count dipping to 308 in June 2025—a 10% decline from a year ago—and the Eagle Ford Basin's rigs dropping to 50. This sustained contraction raises critical questions: How will production hold up? And what does it mean for crude prices and energy investors? The answers suggest a tightening market—and a compelling case for bullish bets in the energy sector.

The Rig Count Slump and Production Resilience

Despite the rig reductions, production has held up—so far. The EIA forecasts Permian output to reach 6.6 million barrels per day (b/d) by year-end 2025, while Eagle Ford crude output is projected to rebound slightly to 1.15 million b/d. This resilience stems from two factors:
1. Frac Crew Overcapacity: The Permian alone has 129 active fracking crews, 55% of the U.S. total, which are completing a backlog of drilled but uncompleted (DUC) wells.
2. Operational Efficiency: New wells in the Permian now average 433,000 b/d of initial production, up from 350,000 b/d in 2020, thanks to longer laterals and better geology targeting.

The Breakeven Price Disconnect

The disconnect between current rig activity and breakeven costs is stark. Most Permian operators require a WTI price of $55–$65/bbl to justify new drilling, yet WTI has averaged just $73–$81/bbl in 2025—below the $80–$90/bbl needed to sustain growth. This explains why rig counts are falling even as prices rebound.

Geographic Divergence: Permian Strength vs. Eagle Ford Weakness

The Permian's dominance is unchallenged, but the Eagle Ford is fading. While Permian gas production is soaring (25.8 billion cubic feet/day by 2025), Eagle Ford gas output is shrinking due to low prices and capital reallocation. This divergence has two implications:
1. Gas Glut Risks: Permian's rising associated gas could exacerbate oversupply unless pipelines like the Matterhorn (online late 2024) and Blackcomb (2026) ease bottlenecks.
2. Oil Focus: Producers are pivoting to oil-rich zones. For instance, Occidental's Permian production is expected to grow 15% in 2025, while Eagle Ford operators like CML Exploration are idling rigs.

The Inflection Point: Why 2025 Will Be the Year of Supply Constraints

The rig slump will eventually overwhelm production. Key risks include:
- DUC Depletion: Permian DUCs, now at record highs, will be exhausted by late 2025, forcing reliance on new drilling.
- Capital Discipline: E&P firms like Diamondback and Matador have slashed budgets by $400 million and $100 million, respectively, to prioritize cash flow over growth.

By late 2025, the math becomes clear: Without new rigs, Permian output could stall at 6.6 million b/d—far below the 7.2 million b/d some analysts had projected earlier. This supply crunch will tighten global markets, especially as OPEC+ cuts persist and Russian exports dwindle.

Investment Implications: Bullish on Crude, Selective on Equities

The rig-count-driven supply squeeze argues for a bullish stance on crude prices by late 2025. Investors should consider:
1. Long WTI Futures: Target contracts expiring in Q4 2025, which currently trade at $81/bbl—well below the $90/bbl we expect by year-end.
2. Upstream Equities: Focus on Permian-heavy producers with low breakeven costs. Occidental (OXY), with its 15% Permian growth target, and Pioneer Natural Resources (PXD) are top picks.
3. Avoid Gas-Exposed Names: Producers like Range Resources (RRC) face headwinds as gas prices languish below $4/MMBtu.

Conclusion: Rig Cutdowns Are the Catalyst

The Permian's DUCs and frac crews have masked the rig-count reality—until now. By late 2025, the math of declining drilling and exhausted DUCs will force a supply slowdown. For investors, this is a rare opportunity to position for a crude price rally. The Permian's role as the last growth engine in U.S. shale ensures that even a modest rebound in rig activity will be insufficient to meet demand. Bullish bets on crude and Permian-focused equities are the plays to watch.

Disclosure: The author holds no positions in the mentioned equities.