The industry is preparing for the upcoming OPEC Plus oil cartel meeting on Saturday, where expectations are set for an increase in oil production, despite currently weak demand.
In the United States, oil companies are scaling back operations as lower commodity prices impact their profitability. Following two months of crude oil prices remaining around $60 a barrel, many companies are shutting down drilling rigs and laying off workers in response to reduced spending.
Two primary factors contributing to the decline in oil prices include the potential slowdown of the global economy due to President Trump’s trade war, which is expected to dampen fuel demand, and OPEC Plus’s decision to increase oil production amidst softening demand.
During the Saturday meeting, eight members of the cartel are anticipated to announce plans to further increase oil availability this summer, potentially driving prices down further.
American oil companies are proactively adjusting their strategies. While larger firms like Exxon Mobil and Chevron are maintaining their spending plans, smaller companies are reducing expenditures. An analysis by BloombergNEF indicates that companies focused on oil drilling plan to spend approximately 3.5 percent less this year compared to previous forecasts. Generally, increased drilling tends to lower oil prices, while decreased drilling can support them.
Tom Jorden, CEO of Coterra Energy, expressed caution during a recent earnings call, stating, “We can’t run our program on hope,” indicating a strategic retreat in anticipation of prolonged low prices.
The Houston-based company has indicated a shift in focus from drilling in the Permian Basin, the leading U.S. oil field, to more natural gas exploration in the Northeast, where prices have been more stable.
This pullback in oil production contrasts with the promises made by President Trump during his campaign, which emphasized increased drilling activities.
According to the International Energy Agency (IEA), this reduction in production is likely to lead to declines in U.S. shale basins, which are responsible for most of the country’s oil output, later this year. The contraction could hasten if oil prices fall below $60 a barrel, leading to the removal of drilling rigs and subsequent job losses in states like Texas.
Diamondback Energy, one of the major producers in the Permian region, indicated that the U.S. oil industry might have reached peak production, with current output exceeding 13 million barrels per day.
In a letter to shareholders, Travis Stice, former CEO of Diamondback, noted, “It is likely that U.S. onshore oil production has peaked and will begin to decline this quarter,” likening the situation to slowing down as one approaches a red light.
Diamondback has also revised its annual spending forecast down by 10 percent.
Oil prices have experienced fluctuations in recent months, influenced by tariff increases by the U.S. and its trading partners, with prices rebounding on news of potential easing in trade tensions. For instance, prices approached $63 a barrel late Wednesday after a court blocked certain tariffs from being implemented, but retreated the following day when a ruling allowed tariffs to remain in effect.
Despite these fluctuations, oil prices remain significantly lower than before President Trump took office, when they were close to $80 a barrel, allowing U.S. producers to achieve healthy profits.
Even those optimistic about long-term oil price recovery are preparing for continued lower prices in the near future. Vicki Hollub, CEO of Occidental Petroleum, remarked on the long-term potential for price recovery, suggesting that while immediate prospects may not align with desired levels, an eventual increase is anticipated.