The high cost of drilling and low prices for oil are discouraging oil companies from drilling in America’s oil patch. Myles McCormick reports in the Financial Times:

The prolific US shale oil and gas industry is decelerating in the face of weakening commodity prices, suggesting production growth will stall at a time of booming demand.

Evidence of stagnating activity is mounting. A survey by the Federal Reserve Bank of Dallas posted a score of zero for business activity growth in the second quarter among some 150 oil and gas groups in its region — suggesting any expansion had hit a wall. It was the lowest score since 2020, when an oil price crash during the coronavirus pandemic forced operators to slash headcounts and idle drilling rigs.

On Friday, data showed that the number of drilling rigs deployed across the country had fallen for the eighth week in a row, according to Baker Hughes, an oilfield services company.

“Weak oil and gas prices” and “high costs” had “brought growth in oil and gas activity to a standstill in the second quarter”, said Michael Plante, senior research economist and adviser at the Dallas Fed.

US natural gas prices have slid from more than $6 per million British thermal units a year ago to less than $3. Brent crude, the international oil price benchmark, sat at about $74 a barrel on Friday, down more than a third since this time last year.

With average producers needing an oil price of $66 a barrel to break even this year, according to HSBC, that is barely enough for many drillers to turn a profit.

American oil output is still rising, however, driven by the prolific Permian Basin of West Texas and New Mexico, and may even hit a new record high later this year, according to the US Energy Information Administration.

But those volumes reflect drilling decisions taken months ago, when oil prices were higher. The fall in drilling activity since then suggests any spurt in output will be shortlived. Shale output requires ever more drilling just to hold output steady, with new production tending to come on line months after wells are fracked.

As the world guzzles increasing volumes of oil, any deterioration in US production growth is all alarming, given that the country has been main source of added supply in recent years.

Among the issues weighing on the shale patch’s ability to grow are commodity prices, worker shortages, investors’ insistence on returns and growing fears that shale rocks, which made the US the most dynamic producer in the world, are becoming increasingly less productive.

Escalating costs for everything from well casing to pressure pumping equipment are also biting into profit margins.

“Expenses for everything have increased dramatically, while . . . prices remain weak,” said one executive surveyed by the Dallas Fed. “It seems as if the break-even price for oil is in the mid-$70-per-barrel range at this point. I would drill if costs were not so high.”

Read more here.