Major Expenditure Cuts Announced

Diamondback Energy, a leading player in the West Texas Permian Basin—America’s largest oilfield—revealed a substantial reduction in its future spending plans. The company reported a projected cut of $400 million in its 2025 capital budget, bringing it down to a range of $3.8 billion to $4.2 billion. Alongside this budget reduction, Diamondback plans to decrease its drilling fleet, eliminating three rigs. CEO Travis Stice expressed concerns that the overall number of operational drilling rigs in the US could drop by 10% by the end of June, with further declines anticipated in the third quarter.

Coterra Energy, another prominent Houston-based company, echoes these sentiments. It is reducing its planned capital expenditures for 2025, aiming for a budget of $2 billion to $2.3 billion. This marks a slight decrease from an earlier forecast of $2.1 billion to $2.4 billion. Coterra also confirmed it would scale back its drilling operations, cutting the number of rigs from 10 to 7 in the latter half of the year.

Market Reactions and Price Challenges

The oil market reacted swiftly to recent developments, with oil prices plunging more than $1 per barrel, landing at four-year lows. Brent crude, the international benchmark, settled at $60.23 per barrel, while West Texas Intermediate closed at $57.13 per barrel. These price drops were influenced by OPEC+’s decision to implement a second consecutive monthly output increase, alongside concerns over US trade tariffs potentially affecting the global economy.

April saw Brent crude prices fall by nearly 20%, marking the largest monthly decline in over three years. Industry analysts warn that prices below $60 a barrel could hinder profitability for many US shale producers, particularly in older oilfields. Such conditions may force companies to scale back drilling operations, leading to job losses and the reduction of active drilling rigs. Analysts believe that without a significant recovery in prices, the US may cede market share to more cost-effective OPEC+ producers.

Future Production Outlook

If guidance from leading US operators continues along the current trajectory through the earnings season, forecasts suggest a decline in shale production for the remainder of the year and moving into 2026. According to Andrew Gillick, a managing director at Enverus, this situation could create opportunities for OPEC+ to regain market share in a landscape where US production declines.

Political Implications

In light of these economic changes, US President Donald Trump has publicly welcomed falling oil prices, viewing them as a mechanism to combat inflation. He has suggested that decreased oil prices may incentivize Russia to seek resolutions regarding the conflict in Ukraine, given the country’s reliance on oil exports. Trump 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.”