U.S. oil manufacturing has possible peaked and can begin to decline attributable to value plunge, Diamondback CEO warns

U.S. onshore oil manufacturing has possible 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 gas producer and its power safety, the CEO of Diamondback Power instructed shareholders in a letter this week

U.S. crude oil costs have tumbled about 17% this 12 months as recession fears attributable to President Donald Trump‘s tariffs weigh on demand expectations. On the identical time, OPEC+ producers led by Saudi Arabia are quickly growing provide 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.

“Subsequently, we consider 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 possible that U.S. onshore oil manufacturing has peaked and can start to say no this quarter,” Stice instructed traders in his letter, pointing to cuts in exercise ranges.

Diamondback is an unbiased oil and fuel producer centered 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 largest within the continental U.S., in keeping 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.

The shale revolution over the previous 15 years has reworked the U.S. into the most important fossil gas producer on the earth, with the nation pumping extra oil and fuel than Saudi Arabia and Russia mixed, the CEO mentioned.

“This has reworked our financial system and given the USA a degree of power safety not thought potential at the start of this century,” Stice instructed traders. “At this time’s costs, volatility and macroeconomic uncertainty have put this progress in jeopardy,” the CEO warned.

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 “may be an untenable raise for the enterprise mannequin that we put in place, the place we’re returning a lot again to our traders who personal the corporate,” Stice instructed analysts on Diamondback’s earnings name Tuesday morning.

“We do not have a crystal ball in the remainder of the world, however we now have an excellent view of what the U.S. appears like, and proper now, that is a enterprise that is slowing dramatically and certain declining by way of manufacturing,” Stice mentioned.

The variety of crews fracking shale for oil and fuel has already fallen 15% this 12 months with crews within the Permian Basin down 20% from a peak in January, Stice estimated, warning that variety of crews will possible decline additional.

Rigs centered on oil manufacturing are anticipated to say no practically 10% by the top of the second quarter and fall additional within the third, the CEO mentioned.

Diamondback has reduce its capital finances by about $400 million to $3.4 billion to $3.8 billion this 12 months. Trump’s metal tariffs are the largest price headwind the oil producer is at present combating, Stice mentioned. These tariffs have elevated effectively prices by about 1% or $40 million yearly, the CEO mentioned. Effectivity good points are anticipated to offset rising prices as exercise slows within the coming quarters, he mentioned.

Diamondback has dropped three rigs and one completion crew, and the corporate expects to stay at these ranges by the vast majority of the third quarter, the CEO mentioned in his letter. It now expects to drill between 385 to 435 wells this 12 months and full 475 to 550 wells.

“To make use of a driving analogy, we’re taking our foot off the accelerator as we method a crimson mild,” Stice mentioned. “If the sunshine turns inexperienced earlier than we get to the stoplight, we are going to hit the fuel once more, however we’re additionally ready to brake if wanted.”