Lower oil prices are leading to a reduction in drilling activity in the US. The Dallas Federal Reserve Energy Survey indicates that oil producers need an average price of $65 per barrel to profitably drill new wells, while West Texas Intermediate is trading in the mid-$50s.

The US oil rig count has declined to 479 from a peak of 489 in April. Well completions and frac spread counts are also decreasing. Even if drilling continues, production is not assured as producers may delay completing wells due to the low-price environment, increasing the inventory of drilled but uncompleted wells (DUCs).

Impact On Natural Gas Supply

A decline in US oil activity impacts natural gas supply, as much of it is associated with oil production. This could pose a challenge, particularly with the expected rise in US LNG export capacity and stronger gas demand.

Lower oil prices have begun to impact drilling activity across the US. Based on the Dallas Fed’s latest figures, most producers require around $65 per barrel to make new wells financially feasible. With West Texas crude currently pricing in the mid-$50 range, firms are left operating below breakeven. This disconnect between market prices and drilling economics has now translated into fewer rigs running—standing at 479, which is down from the 489 rigs logged back in April.

The slowdown doesn’t just stop at rig counts. The number of well completions is tapering off, and fracture spread data suggests a similar slowdown on the service side. Even where wells continue to be drilled, companies appear more reluctant to finish them immediately. Delaying completions—the final steps needed to push a well into production—adds to the inventory of DUCs (drilled but uncompleted wells), effectively deferring output into a later time horizon. From our perspective, the shift here is less about halting activity, and more about shifting timing in response to thin margins.

There’s an added layer here. A reduction in oil drilling doesn’t just restrict crude output. Because a substantial portion of natural gas in the US is co-produced during oil extraction (what’s known as associated gas), this pullback has implications for natural gas supply. That connection becomes even more relevant when considered alongside rising demand expectations—particularly from the liquefied natural gas export segment, which is slated to expand. Project timelines for new LNG facilities suggest a ramp in gas consumption by the latter half of next year, which means any constraints in associated gas output may tighten the market before then.

Changing Natural Gas Market Dynamics

What’s more, this dynamic shifts the calculus for natural gas exposure. If associated gas volumes decline and demand climbs as expected, spot and prompt month contracts could begin to reflect tighter fundamentals, especially through winter strip pricing. From where we stand, this isn’t just a transient adjustment—it’s a change in the supply curve that merits close attention over the next several weeks.

On the options side, skew may begin to reflect increasing interest in upside gas exposure, particularly in calendar spreads and risk reversals that are positioned to benefit from tightening supply into seasonal demand peaks. Those with open interest in the front months may want to examine price sensitivity in blocks correlating with updated LNG commissioning schedules.

Given that drilling economics are unlikely to improve quickly under current price levels, the likelihood of a swift rebound in rig activity seems low. That provides a more stable underlying environment for directional trades, at least in the near term. If well completion slowdowns continue, gas markets may start to respond earlier than consensus currently suggests. As always, pricing disconnects tend to correct themselves more sharply when traders are caught off guard.

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