Oil: Reading the Tea Leaves

by David Archibald

10 November 2025

 

Here is a chart of the oil price over the last seven years:

 

 

The blue lines show that, over the last four years, the oil price has formed a big, bullish descending wedge that projects to beyond US$120 per barrel. Why would that be?

Most of the growth in world oil supply over the period of that chart came from District 8 of Texas, and the adjoining Lea and Eddy Counties of New Mexico. District 8 is the area of West Texas coloured green in this map:

 

 

And this graph shows how important District 8 is to world oil supply:

 

 

This was achieved with some physical effort. 40,000 oil and gas wells were drilled in District 8 from 2017. Nevertheless, it looks like District 8 has rolled over into decline. Is that just noise that could be reversed by a bit of extra drilling or has it passed through the bubble point?

To recap briefly, the major problem of tight oil production in Texas is pressure maintenance in the reservoir. As pressure drops with production, at some point the pressure will go below the bubble point at which gas bubbles will come out of solution in the oil. Gas is preferentially produced as the gas bubbles are more slippery than the oil.  Howard County was the first tight oil-producing county in District 8 to go through the bubble point:

 

 

It did that in July 2023. Howard County’s oil production fell 26% in the year to July 2024 and then a further 22% in the year to July 2025. The fall over two years was 42% from the 2023 peak. If repeated throughout the rest of District 8, going through the bubble point would signal an imminent, rapid decline in oil production. The plot of gas/oil ratio against oil production rate suggests that District 8 did that in February 2025:

 

 

That is confirmed by another way of looking at the data. From the textbook-quality example of Howard Country, the bubble point is indicated by a rapid decline in oil production rate and a simultaneous increase in the rate of change of the gas/oil ratio:

 

 

For District 8 in aggregate, the two coincident trend changes that signal the month of the bubble point occurred in February 2025:

 

 

A rising oil price will be on top of the rising power prices that we Australians have inflicted on ourselves in pursuit of Net Zero. The good news is that an oil price beyond US$120 per barrel will make synthetic diesel and petrol by hydrogenation of coal commercially viable, as well as being a strategic necessity.

 

David Archibald is the author of The Anticancer Garden in Australia.