The OPEC price war has made landfall in the US.
Following our report earlier that Saudi Arabia has declared a new price war on OPEC+ quota-busters such as Kazakhstan, and non OPEC+ members such as US shale producers, today after the close Diamondback Energy, the largest independent oil producer in the Permian Basin, made a historic pronouncement today when it said that production has likely peaked in America’s prolific shale fields (something we also mentioned earlier in the day) and will decline in the months and years ahead after crude prices plummeted.
Separately, the Texas company trimmed its own full-year production forecast Monday, and said that it expects onshore oil rigs across the entire US industry to drop by almost 10% by the end of the second quarter and fall further in the months after.
“This will have a meaningful impact on our industry and our country,” Diamondback Chief Executive Officer Travis Stice wrote. “We believe we are at a tipping point for U.S. oil production.”
The outlook from Diamondback, one of the industry’s most prominent producers, marks a key shift for expectations within the sector. Before oil prices started plunging last month, most banks and research firms had forecast US shale production would grow this year and next before plateauing later in the decade. The Permian, they said, was apt to peak in the late 2020s or early 2030s depending on prices.
Not any more.
As Bloomberg notes, the US shale fields have been the engine behind the surge in US crude output over the past 15 years, making the country the world’s top producer and largely energy independent, much to the horror of OPEC. The ability of companies like Diamondback to quickly bring new wells online using hydraulic fracturing, also known as fracking, has bedeviled OPEC. But the prospect that shale may now have reached its peak and is facing years of painful decline, poses a huge threat to US President Donald Trump’s goal to turbocharge fossil fuel production.
While analysts and pundits have long said repeatedly that US shale is poised to peak, the industry had managed to prove them wrong by innovating and driving output to fresh records year after year.
So the assertion by Diamondback that the moment has finally come is extremely noteworthy.
“Today, geologic headwinds outweigh the tailwinds provided by improvements in technology and operational efficiency,” said Stice, who will step down as CEO at the company’s annual shareholder meeting later this month.
US oil futures, pricing in a global demand recession, have dropped about 20% since the start of April when Trump announced wide-ranging tariffs that triggered a global trade war. At the same time, OPEC and its allies have surprised markets with plans to increase oil supplies more than expected later this year in response to internal bickering, and particularly the unwillingness of some members such as Kazakhstan to comply with set production quotas.
It’s led to frustration spilling out both privately and in public comments from America’s oil bosses. US Energy Secretary Chris Wright sought to reassure the industry during a visit to Oklahoma last month, saying turmoil from the president’s trade war is likely to be fleeting.
“We can’t help but wonder if the last ‘letter to stockholders’ written by outgoing CEO Travis Stice was intended as much for government leaders in Washington, DC as it was for FANG shareholders,” Tim Rezvan, an analyst at KeyBanc Capital Markets wrote in a note to clients.
Hellbound and Down 