The EIA's December 2025 Short-Term Energy Outlook paints a mixed picture for oil and gas investors heading into 2026. Crude prices are softening, natural gas is finally gaining ground, and US production keeps setting records. Here is what the numbers mean for qualified investors considering direct participation in drilling programs.
Global Oil Markets
Brent crude averaged roughly $74 per barrel through 2025, down from the $80+ range that defined much of 2024. The EIA forecasts further softening into 2026, with Brent settling in the $68-72 range. WTI is trading around $70-71 per barrel as of mid-December.
OPEC+ has extended its voluntary production cuts into 2026, but the coalition faces growing pressure from members who want to recapture market share. If compliance weakens, additional barrels could push prices lower. On the demand side, Chinese consumption growth has slowed, and European industrial demand remains flat.
For operators like us, $70 oil still supports profitable drilling in the right formations. Our Anadarko Basin and Mid-Continent wells typically break even well below $50 per barrel. Lower prices do compress margins, but they also reduce competition for services and equipment.
US Production & Drilling Activity
US crude production hit approximately 13.5 million barrels per day in late 2025, a new record. The EIA expects modest growth to continue into 2026, though the pace is slowing as operators prioritize capital discipline over volume growth.
The active rig count has drifted lower over the past year, settling near 580 rigs. This reflects a broader industry shift: producers are drilling fewer, more productive wells rather than chasing volume. For direct participation investors, fewer rigs does not mean fewer opportunities. It means operators are being more selective about where they drill.
Natural Gas Outlook
Natural gas is the story heading into 2026. Henry Hub spot prices averaged $2.20-2.50 per MMBtu through much of 2025, held down by mild weather and elevated storage levels. The EIA now forecasts Henry Hub averaging $3.10 per MMBtu in 2026. That is a 25-40% increase from 2025 levels.
The drivers are straightforward: LNG export capacity is expanding, power generation demand keeps climbing (particularly from data centers), and producers have pulled back on gas-directed drilling after two years of low prices. The supply-demand balance is tightening.
For our wells that produce associated gas alongside oil, higher gas prices improve overall well economics without any change to our drilling plans.
LNG Export Expansion
Plaquemines LNG in Louisiana began commissioning in late 2025, adding significant new export capacity to the US Gulf Coast. When fully operational, it will pull roughly 2 Bcf/d of natural gas from domestic supply.
More LNG export capacity means more structural demand for US natural gas. This is a long-term tailwind for gas-weighted drilling programs. Producers who locked in supply agreements with LNG facilities benefit from predictable demand that is less sensitive to mild winters or cool summers.
What This Means for Investors
The December STEO data supports a measured approach to oil and gas investment in 2026. Oil prices are adequate but not exceptional. Natural gas is improving after a prolonged downturn. Production efficiency continues to advance.
For qualified investors evaluating direct participation programs, the current environment favors operators with low breakeven costs, diversified production (both oil and gas), and disciplined capital allocation. We look for wells where the economics work at $60 oil and treat anything above that as upside.
The improving natural gas outlook is particularly relevant. Wells drilled in 2026 that produce associated gas will benefit from significantly better gas revenue than wells drilled in 2024 or early 2025.
Year-End Tax Planning Opportunity
Qualified investors considering a 2025 tax year investment still have a narrow window. Under IRC Section 263(c), intangible drilling costs (IDCs) are deductible in the year the investment is made, provided drilling commences or costs are incurred before year-end.
If you invest $100,000 in a drilling program and $75,000 qualifies as IDCs, you can typically deduct that $75,000 against ordinary income in 2025. At a 37% federal rate, that is roughly $27,750 in tax savings in year one, before the well produces a single barrel.
The combination of current commodity prices and available tax benefits makes the end of 2025 a practical entry point. Contact our team to discuss specific program details and timing requirements.
