A pumpjack located in Kern County, near Buttonwillow, California, was photographed on April 9th. The CEO of Diamondback Energy recently informed shareholders that U.S. onshore oil production has likely reached its peak and is expected to decline due to the significant drop in crude prices. This decline poses a threat to the nation’s status as the largest fossil fuel producer globally and its energy security.
The decrease in U.S. crude oil prices, around 17% this year, is attributed to recession fears stemming from President Donald Trump’s tariffs, impacting demand projections. Concurrently, OPEC+ members led by Saudi Arabia have been rapidly increasing oil supply to the market. Adjusted for inflation, oil prices are currently at their lowest levels since 2004, excluding the unprecedented events of 2020 related to the Covid-19 pandemic.
Diamondback’s CEO, Travis Stice, cautioned shareholders in a letter that the company believes the current commodity prices signal a pivotal moment for U.S. oil production. He indicated that a decline is likely to commence this quarter due to reduced activity levels. Diamondback, a prominent independent oil and gas producer focused on the Permian Basin, ranks as the third-largest oil producer in the region and the sixth-largest in the U.S.
In light of the projected decline in domestic production, U.S. crude oil prices surged over 4% to $59.56 per barrel on Tuesday. Stice emphasized the risk to energy security posed by current market conditions, as the shale revolution has positioned the U.S. as a major fossil fuel producer. The CEO highlighted the transformative impact of this revolution over the past decade and a half, underscoring the economic benefits and enhanced energy security it has bestowed upon the nation.
However, the recent market volatility and economic uncertainty threaten to undermine these achievements. Stice expressed concerns about the potential impact of falling oil prices on the capital required for sustaining production levels in the U.S. and the Permian Basin. He emphasized the challenges posed by these evolving market dynamics and their potential implications for the company’s business model and investor returns.
Stice also noted the decline in fracking crews for oil and gas extraction, particularly in the Permian Basin, which has already seen a 20% decrease from peak levels earlier in the year. He anticipates further reductions in crew numbers and oil production rigs in the coming quarters. Diamondback has responded to these challenges by trimming its capital budget and addressing cost pressures, including those stemming from tariffs on steel imposed by the current administration.
In conclusion, Diamondback and the broader U.S. oil industry are navigating a period of significant change and uncertainty, with the outlook pointing towards a slowdown and potential decline in production levels. Stice remains cautiously optimistic about the company’s ability to weather these challenges through operational adjustments and efficiency gains in the face of evolving market conditions.
In his letter, the CEO shared that the company will maintain its current staffing levels with one completion crew through most of the third quarter. The company now plans to drill between 385 to 435 wells and complete 475 to 550 wells this year. The CEO likened the company’s current approach to a driver easing off the accelerator as they approach a red light, ready to speed up if the light turns green or brake if necessary. CNBC also reported on topics including the future of Berkshire’s stock portfolio management post-Warren Buffett and Microsoft’s latest introduction of more affordable Surface PCs running AI models.
