Shale Producers Cut Capital Expenditure Amid Falling Oil Prices
In a significant development within the U.S. oil industry, two prominent shale producers announced reductions in their capital expenditures on Monday as a response to declining oil prices. This decision has raised concerns that U.S. oil production may have reached its peak and could begin to decrease moving forward.
Capital Budget Adjustments
Diamondback Energy, a leading player in the Permian Basin—the largest oilfield in the U.S.—has estimated that the number of operating fracking crews has already dropped by 15% this year. Without a swift recovery in prices, this trend is expected to continue. The company is revising its capital budget for 2025, lowering it by $400 million to a range of $3.8 billion to $4.2 billion, and plans to reduce the number of active drilling rigs by three. Furthermore, Diamondback projects a 10% decline in the number of U.S. drilling rigs by the end of June.
CEO Travis Stice noted, “As a result of these activity cuts, it is likely that U.S. onshore oil production has peaked and will begin to decline this quarter.”
Coterra Energy’s Strategic Cuts
Similarly, Coterra Energy, based in Houston, announced that it would be cutting its capital expenditures for 2025 to between $2 billion and $2.3 billion, down from a previous forecast of $2.1 billion to $2.4 billion. This adjustment includes a reduction of its drilling rigs in the Permian region from ten to seven in the latter half of the year.
Market Reactions
The recent announcements come at a time when oil prices are experiencing significant declines. Brent crude, the international benchmark, fell to $60.23 a barrel, while West Texas Intermediate settled at $57.13 per barrel. This downward trend in prices was influenced by OPEC+’s recent decision to increase output for the second consecutive month, combined with concerns over potential economic impacts from U.S. trade tariffs.
April witnessed a nearly 20% fall in Brent prices, marking the largest monthly drop in over three years. At the current price levels, many U.S. shale producers face challenges in maintaining profitability, especially in older oil basins. Analysts suggest that these circumstances may compel producers to cease drilling activities, lay down rigs, and even cut jobs. As a result, the U.S. is at risk of losing market share to lower-cost OPEC+ producers.
Andrew Gillick, managing director at energy research firm Enverus, highlighted the implications of these recent developments: “If recent guidance from two major U.S. operators holds through earnings season, shale production is set to decline through the rest of the year and into 2026 — opening the door for OPEC+ to finally reclaim market share.”
Political Implications
The declining oil prices have not gone unnoticed at the political level. Former U.S. President Donald Trump, who campaigned on a platform of American energy independence, expressed that the reduction in oil prices could alleviate inflation and potentially expedite negotiations to end the war in Ukraine. He stated, “I think Russia, with the price of oil right now, oil’s gone down, I think we’re in a good position to settle.”
This evolving landscape within the oil sector emphasizes the ongoing volatility influenced by global economic factors and underscores the precarious position of U.S. shale producers in a competitive market.