In a recent letter to stockholders, Diamondback Energy's CEO Travis Stice provided crucial insights into the current state of U.S. oil production, indicating a significant turning point for the industry. The company, which has seen remarkable growth since its inception, now produces 850,700 barrels of oil equivalent per day (BOE/d) and boasts an enterprise value of $52 billion, a stark contrast to its $500 million valuation in 2012 when it was a mere 3,000 BOE/d producer.
Stice's letter, which marks his final communication as CEO before transitioning to the role of Executive Chairman, highlighted several key trends that could shape the future of oil production in the United States. He stated, "We believe we are at a tipping point for U.S. oil production," emphasizing that the cost of supply for the average barrel of oil has risen over the past decade. He noted that geological challenges are now outweighing the benefits gained from technological advancements and efficiency improvements.
In light of these developments, Stice anticipates a slowdown in drilling activity, predicting that oil production will begin to decline. He pointed out that the U.S. frac crew count has already dropped by approximately 15% this year, with the Permian Basin experiencing a 20% decrease from its January peak. Stice warned, "It is likely that U.S. onshore oil production has peaked and will begin to decline this quarter," suggesting that even the most efficient operations may not be able to counteract this downward trend.
Reflecting on the broader implications of the U.S. oil industry, Stice remarked, "This will have a meaningful impact on our industry and our country." Over the past 15 years, the U.S. oil sector has seen production soar by 8 million barrels per day, pushing total output to over 13 million barrels per day. This growth has positioned the U.S. as the third-largest oil producer globally, surpassing both Russia and Saudi Arabia combined when considering both oil and gas production.
Stice underscored the transformative impact of this growth on the U.S. economy, contributing to job creation, GDP growth, and improved trade balances. He noted that the oil and gas industry has generated over 2 million jobs and provided substantial tax revenues, with the Texas oil and gas sector contributing over $27 billion in tax dollars to Austin in 2024 alone. He remarked, "This represents the best of American ingenuity, strengthening America’s standing on the world stage while creating millions of high-paying American jobs. In addition, the tax revenue generated from our industry supports education, infrastructure, and health care across the country." However, he cautioned that current prices, volatility, and macroeconomic uncertainties threaten to jeopardize this progress.
Meanwhile, the global oil landscape is also shifting. Last week, OPEC+ announced plans to accelerate the unwinding of production cuts, increasing output targets for June by 411,000 barrels per day. This decision follows similar actions in April, as the organization aims to balance low oil prices with concerns about weakening demand. Analysts from Standard Chartered reported that Kazakhstan's crude oil output exceeded its OPEC+ quota by 384,000 barrels per day in March, leading to a total overproduction of 422,000 barrels per day.
As OPEC+ navigates these complexities, oil futures are sending mixed signals. A rare "smile" shape has emerged in the oil futures curve, indicating a potential for immediate supply tightness due to the backwardation of Brent futures for July delivery, which traded at a premium of 74 cents over the October contract. However, this is coupled with a contango in later months, suggesting oversupply as traders anticipate weakened oil demand due to tariffs imposed by the Trump administration.
According to the International Energy Agency (IEA), global oil inventories stood at 7.647 billion barrels in February, down from 7.709 billion barrels the previous year. As the peak driving season approaches in July and August, global oil demand is projected to rise by 1.3 million barrels per day in the third quarter of 2025, up from an average of 104.51 million barrels per day in the second quarter. This anticipated increase in demand nearly matches the OPEC+ output hikes, implying that markets may not face a surplus until late in the year.
In a related development, U.S. jobless claims fell by 13,000 to 228,000 for the week ending May 3, 2025, reflecting ongoing challenges in the job market as the economy continues to stall. Meanwhile, the oil and gas sector's outlook remains cautious, with Standard Chartered recently lowering its oil price forecasts for 2025 and 2026 due to the impact of tariffs on demand.
On the trading front, West Texas Intermediate (WTI) oil prices fell slightly to $59.89 per barrel on May 9, 2025, while Brent crude dropped to $62.98 per barrel. Canadian Natural Resources Ltd., one of Canada's largest oil producers, has stated that it can sustain operations even if crude prices fall to the low- to mid-$40-per-barrel range. The company has also announced a reduction in its capital spending for the year by $100 million to $6.05 billion, citing improved cost efficiencies.
Despite these challenges, Canadian Natural reported a record production of 1,582,348 BOE/d in the first quarter of 2025, reflecting a significant increase from the previous year. The company’s profit surged to $2.46 billion, up from $987 million a year earlier, demonstrating resilience in a fluctuating market.
As the world watches closely, the future of U.S. oil production remains uncertain. The interplay of domestic production trends, OPEC+ decisions, and broader economic factors will likely shape the trajectory of global energy markets in the coming months.
