The US economy would suffer irretrievably in the event of a prolonged government dysfunction. That much was made clear by one of the White House advisers, who warned of a potential contraction in the fourth quarter unless government buildings reopen promptly. The damage, estimated at around $15 billion per week by the Council of Economic Advisers, has been most acutely felt in air travel, as a shortage of controllers has caused significant delays with severe consequences ahead of the busy Thanksgiving holiday.

A compromise reached in the US Senate was therefore greeted with a strong rally in equities, although the bill, which would extend government funding through January 30, still needs to clear the House before the President can sign it. Nonetheless, there is a shimmering light at the end of the tunnel. Yesterday’s rally was led by the tech sector, with the Nasdaq Composite Index gaining 2.3% on the day. Equities, however, are on the defensive in Asia this morning amid concerns about overstretched valuations.

Oil prices remained volatile, at least on an intraday basis, but it is probably fair to conclude that without strong support from refined products, crude prices would be lower. The volume of oil on water continues to rise as China and India, possibly temporarily, have halted their purchases of Russian crude. Saudi Arabia, Iraq, and Kuwait have all lowered their December OSPs to Asia, another unmistakable sign of abundant crude oil supply. On the other hand, fresh US sanctions on major Russian oil producers and exporters are weighing on product exports. As a result, Heating Oil/Gasoil and RBOB are moving in a different direction from crude. The narrowing backwardation in WTI and Brent is notable; however, unless the rug is decisively pulled out from under refined products, and it is anyone’s guess when that might happen, no major sell-off in outright prices appears imminent.

Risen from the Ashes

The updated monthly reports on global and regional oil balances will be available this week. The EIA will release its findings tomorrow afternoon, one day later than usual, according to its website, on the same day as OPEC, while the IEA will publish its flagship Oil Market Report on Thursday. Looking back at past datasets, the divergence in views is almost troublingly clear. There is no consensus on demand forecasts for next year, with the gap between estimates for 2026 as wide as 2 mbpd. The difference in non-OPEC+ supply forecasts is 1.38 mbpd. Consequently, predictions for the OPEC+ call also vary, ranging from 39.8 mbpd to 43.10 mbpd for 2026. The EIA and OPEC both projected a substantial increase in the 2026 OPEC+ call last month, betting on faster demand growth than non-OPEC+ supply growth, while the IEA took the opposite view.

We will soon find out whether US tariffs or the weakening global manufacturing sector justify any downward revision to demand projections, and therefore, to the demand for OPEC+ oil. What seems certain is that output from countries outside the producer alliance will remain plentiful. The usual contributors are Argentina, Canada, Brazil, and Guyana, with a combined year-on-year growth rate of 640,000 bpd, according to EIA estimates. The notable absentee is the world’s biggest oil producer, which also happens to be the largest consumer of the black stuff, the United States. The statistical arm of the Department of Energy expects total US crude oil production to decline from 13.53 mbpd in 2025 to 13.51 mbpd in 2026, after an annual increase of 300,000 bpd this year. The bleak outlook for US production is also evident in the 110,000 bpd reduction in the 2026 forecast between January and October this year.

These figures, however, may need to be reassessed. Monthly data from the EIA, covering the period through August, show increases in every single month of 2025 except May. Between January and August, field production rose from 13.14 mbpd to 13.79 mbpd. Weekly data showed a record production level of 13.65 mbpd for the week ending October 31. Although this may appear contradictory, being lower than the August figure, it should be noted that in recent years, the EIA has consistently revised its monthly estimates upward as more reliable data became available. For August, for instance, the upward correction between the weekly and monthly figures exceeded 300,000 bpd.

The resilience of US production stems not from the government’s “drill, baby, drill” policies but from the shale sector’s remarkable ability to continually reinvent itself. Many will recall the obituaries written for the shale industry at the height of the 2020 pandemic. Yet the sector emerged leaner and meaner, and after a wave of consolidation, it reasserted itself as a major driver of non-OPEC+ supply growth. The pre-pandemic production peak of 8.23 mbpd, after falling below 6 mbpd in February 2021, was surpassed two years later, and by September this year, output from major shale plays exceeded 9 mbpd.

This resilience is not a result of government policy. The sector has proven adept at adapting and leveraging technological innovation. Consider this: US rig counts published weekly by service firm Baker Hughes, once a reliable barometer of shale output with a three- to four-month lag, stood at nearly 900 in November 2018, corresponding to an output level of 7.2 mbpd four months later. This June, half as many rigs yielded production of more than 9 mbpd by September.

Using fewer rigs to produce more oil clearly indicates innovation. Energy Intelligence (EI) published a fascinating piece on this topic two weeks ago. Shale companies are now experimenting with technologies that prioritise higher recovery rates over faster drilling, ensuring sustained output growth. As the recovery rate of a typical shale well is just 5%–10%, leaving 90%–95% stranded, the potential upside is enormous. While our non-existent technical expertise prevents a deep dive into the mechanics, it is worth noting EI’s conclusion: doubling recovery from 10% to 20% “would add billions of barrels to extractable US reserves without expanding the surface footprint or drilling intensity.” Should a global supply deficit emerge in the future, it will not be because the US shale sector is on its deathbed.

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