Oil Slides Below $60, Squeezing Energy Producer Profits
Weakening demand and a looming supply glut are pressuring the profitability of exploration and production companies, especially smaller U.S. shale operators.
A sharp decline in global oil prices is sending a chill through the energy sector, with Brent crude, the international benchmark, sliding below the key $60-a-barrel threshold for the first time since May. The drop poses a significant threat to the revenue and margins of oil and gas exploration and production (E&P) companies that are already grappling with a complex market.
On Tuesday, Brent futures fell to near $60 a barrel, extending recent losses amid mounting concerns of a global supply glut persisting into 2026. The move reflects a market contending with surprisingly high inventories and rising output from producers outside of the OPEC+ alliance, namely the United States, Brazil, and Guyana. Compounding the bearish sentiment are signs of flagging demand growth, particularly from China, and the possibility of more Russian oil returning to the market amid ongoing peace talks, as reported by Economy Middle East.
This price level puts significant pressure on the profitability of E&P firms, whose fortunes are directly tied to energy prices. For many U.S. shale producers, the current environment is particularly challenging. All-in breakeven prices, which account for drilling costs, dividends, and debt service, are estimated to be above $62 per barrel for many operators. With oil trading below that level, new drilling activity becomes marginally profitable at best, forcing a difficult choice between scaling back operations or burning through cash.
While existing wells with low operating costs of around $30 a barrel remain cash-flow positive, the incentive to invest in new production is rapidly diminishing. This has already led U.S. E&P firms to trim capital budgets and reduce rig counts, signaling a more defensive posture heading into the new year. According to an analysis by Oil and Gas 360, producers face tough choices on growth and capital returns as prices fall.
The industry's largest players are better insulated from the downturn. Majors like ExxonMobil and Chevron have spent years focusing on capital discipline and developing highly advantaged assets, such as those in the Permian Basin and offshore Guyana, which feature low production costs. These firms can generate substantial free cash flow even with Brent prices around $60, allowing them to maintain dividends and strategic investments. As highlighted by TipRanks, the sector's giants are demonstrating surprising resilience.
However, the pain is acute for the broader ecosystem. Oilfield services (OFS) companies, which provide the equipment, crews, and technology for drilling and well completion, are facing a sharp drop in demand as their E&P clients pull back. This translates directly to lower revenue and intense margin pressure for the OFS sector.
The market outlook remains tilted to the downside. The International Energy Agency's (IEA) latest Oil Market Report from December 2025 projects that global supply growth will continue to outpace demand. This fundamental imbalance, driven by robust non-OPEC+ production, suggests that a sustained price recovery may not be imminent, forcing the entire E&P sector to brace for a period of lower-for-longer prices.