J P M O R G A N North America Equity Research 08 December 2025 2026 E&P and Natural Gas Outlook Oil and NGL Fundamentals Stuck Between a Rock and a Hard Place While Tailwinds Continue for U.S. Gas; Upgrade CNX and DVN, Downgrade AR, OXY, and RRC JPM View: The 2026 E&P Outlook continues to be framed by supply side risks for oil and liquids, but the long-awaited demand inflection for natural gas has finally arrived. While there may be some temptation to take the other side of the "awash in oil" trade, the mag ...

Core Insights - Shale oil executives express concerns that U.S. President Donald Trump's policies are negatively impacting investment in the oil industry, leading to a bleak outlook for the sector that has made the U.S. the largest crude producer globally [1][2]. Industry Sentiment - A quarterly survey by the Federal Reserve Bank of Dallas revealed that 139 oil and gas companies, primarily from Texas, northern Louisiana, and southern New Mexico, reported a grim outlook due to Trump's policies [2]. - Nearly 80% of executives indicated they have postponed investment decisions due to increased uncertainty regarding future oil prices and production costs [3]. Economic Impact - Executives warn that the push for lower crude prices and higher tariffs is detrimental, with one stating that "drilling is going to disappear" as the target price for crude oil is set at $40 per barrel, while current prices hover around $65 per barrel [5]. - The shale industry has faced significant challenges, with one executive claiming it has been "gutted" under both the Biden and Trump administrations, attributing the decline to political hostility and economic mismanagement [6]. Regulatory Environment - While U.S. Energy Secretary Chris Wright claims that the administration is making drilling cheaper by reducing regulations, 57% of executives reported that regulatory changes have only minimally decreased their breakeven costs [8]. Future Outlook - Executives caution that Trump's aggressive stance against the renewable energy sector may have long-term repercussions for the oil and gas industry, predicting that investors will shy away from energy due to volatility and the risks associated with sudden policy changes [9]. - There are warnings that the current attacks on renewables could lead to stricter regulations and penalties for traditional energy sources when political power shifts back to Democrats [10].

Geopolitics and Sanctions - The report suggests that current sanctions under President Biden were designed to help Putin sell oil [1] - President Biden allegedly asked India to import Russian oil to prevent oil prices from staying at $127 per barrel after Russia's invasion of Ukraine [2] - The US attempted to limit Russia's revenue through a price cap mechanism, enabling Russian oil to flow to India and China to keep US gasoline prices low [3][4] - President Trump has threatened to sanction India if they continue importing Russian oil [4] - The best-case scenario involves a ceasefire between Putin and Zelensky, potentially leading to the removal of European sanctions on Russia [7][8] - Europe has heavy sanctions, and new European sanctions are coming on refined products from Russian crude [8] Oil Market Dynamics - Shale oil production is reportedly declining [5] - The market is skeptical about disruption risk and sanctions, and is priced for de-escalation [9] - If the meeting fails and sanctions are implemented, the president will need to calibrate them to coincide with a loosening in global oil fundamentals to avoid sending oil prices up [5] - If Russian barrels are lost and crude oil prices rise above $100 again, shale oil cannot simply pump more to compensate [4]

Shale oil producers added a single drill rig this week after 14 consecutive weeks of declines, staving off at least for now a pandemic-level downturn in US activity https://t.co/5kmubOI499 ...

Market Dynamics - OPEC+ latest actions imply US shale oil must gradually exit the market [1]

American refiners are relying on oil supplies from the country’s biggest shale basins more than ever as flows of denser varieties from places like Mexico ebb https://t.co/amiPQYDH7H ...

Oil Market Dynamics - The market had priced in a $15-20 per barrel premium due to Israel-Iran tensions, which is now being eliminated as the worst of the turmoil appears to be over [2] - Prior to the conflict, debates centered on tariffs potentially driving recession and leading to $50 oil price predictions [3] - Better-than-expected oil demand data and underperforming OPEC production quotas were observed [4] - Shale oil drilling had decreased, leading to questions about potential rollover [4] - Demand is hanging in at around 1 million barrels per day of growth [6] Factors Influencing Oil Prices - Transportation costs, particularly shipping, have surged due to Middle East risk premiums [5] - The potential for shale oil growth resumption if oil prices remain above $70 is a key variable [6] - Underlying oil fundamentals should be the primary focus, considering past disruptions' varied impacts [6][7] Geopolitical Considerations - The Israel-Iran conflict has not demonstrated Iran's strong military capabilities [8] - Most of Iran's oil sales go to China, making the closure of the Strait of Hormuz unlikely [8][9] - China's role is significant in preventing actions like closing the Strait of Hormuz [9]