A pump jack operates close to a fuel turbine energy plant within the Permian Basin oil area outdoors of Odessa, Texas, U.S. February 18, 2025.
Eli Hartman | Reuters
U.S. onshore oil manufacturing has seemingly peaked and can begin to decline because of the latest plunge in crude costs, jeopardizing the nation’s place because the world’s largest fossil gasoline producer and its power safety, the CEO of Diamondback Energy advised shareholders in a letter this week
U.S. crude oil costs have tumbled about 17% this yr as recession fears because of President Donald Trump‘s tariffs weigh on demand expectations. On the identical time, OPEC+ producers led by Saudi Arabia are rapidly increasing supply to the market.
Adjusted for inflation, there have solely been two quarters since 2004 when front-month oil costs have been as low cost as they’re now, excluding 2020 when the Covid-19 pandemic swept the world, Diamondback CEO Travis Stice wrote.
“Due to this fact, we imagine we’re at a tipping level for U.S. oil manufacturing at present commodity costs,” Stice warned the corporate’s shareholders in a letter revealed Monday. “It’s seemingly that U.S. onshore oil manufacturing has peaked and can start to say no this quarter,” Stice advised buyers in his letter, pointing to cuts in exercise ranges.
Diamondback is an impartial oil and fuel producer targeted on the Permian Basin, probably the most prolific oil patch within the U.S. The corporate is the third-biggest oil producer within the Permian and the sixth greatest within the continental U.S., in accordance with knowledge from Enverus.
U.S. crude oil costs rose greater than 4% to $59.56 per barrel Tuesday as home manufacturing is predicted to say no.
Power safety in danger
The shale revolution over the previous 15 years has remodeled the U.S. into the biggest fossil gasoline producer on this planet, with the nation pumping extra oil and fuel than Saudi Arabia and Russia mixed, the CEO stated.
“This has remodeled our economic system and given the USA a degree of power safety not thought doable at first of this century,” Stice advised buyers. “At the moment’s costs, volatility and macroeconomic uncertainty have put this progress in jeopardy,” the CEO warned.
West Texas Intermediate Costs
Relying on how a lot oil costs fall, the quantity of capital wanted for the U.S. to provide 13 million barrels per day and for the Permian to provide 6 million bpd “could be an untenable elevate for the enterprise mannequin that we put in place, the place we’re returning a lot again to our buyers who personal the corporate,” Stice advised analysts on Diamondback’s earnings name Tuesday morning.
“We do not have a crystal ball in the remainder of the world, however we’ve got an excellent view of what the U.S. seems to be like, and proper now, that is a enterprise that is slowing dramatically and certain declining by way of manufacturing,” Stice stated.
Onshore manufacturing to say no
The variety of crews fracking shale for oil and fuel has already fallen 15% this yr with crews within the Permian Basin down 20% from a peak in January, Stice estimated, warning that variety of crews will seemingly decline additional.
Rigs targeted on oil manufacturing are anticipated to say no practically 10% by the tip of the second quarter and fall additional within the third, the CEO stated.
Diamondback has lower its capital price range by about $400 million to $3.4 billion to $3.8 billion this yr. Trump’s metal tariffs are the most important price headwind the oil producer is at the moment preventing, Stice stated. These tariffs have elevated properly prices by about 1% or $40 million yearly, the CEO stated. Effectivity good points are anticipated to offset rising prices as exercise slows within the coming quarters, he stated.
Diamondback has dropped three rigs and one completion crew, and the corporate expects to stay at these ranges via nearly all of the third quarter, the CEO stated in his letter. It now expects to drill between 385 to 435 wells this yr and full 475 to 550 wells.
“To make use of a driving analogy, we’re taking our foot off the accelerator as we strategy a purple gentle,” Stice stated. “If the sunshine turns inexperienced earlier than we get to the stoplight, we’ll hit the fuel once more, however we’re additionally ready to brake if wanted.”