In a significant development for the US energy sector, Diamondback Energy, the leading independent oil producer in the Permian Basin, has announced that American shale oil production has likely reached its peak and will begin declining in the coming months and years, following recent oil price deterioration.
The Texas-based company has reduced its annual production forecast and predicts that onshore oil rigs across the US industry will see a nearly 10% reduction by mid-year, with further decreases expected thereafter. The announcement comes amid a new OPEC price war targeting both non-compliant OPEC+ members like Kazakhstan and US shale producers.
Diamondback CEO Travis Stice emphasized the gravity of the situation, stating that the industry has reached a critical turning point that will significantly impact both the sector and the nation. This assessment marks a dramatic shift in industry expectations, as previous forecasts had suggested continued growth in US shale production through this year and next, with the Permian Basin not expected to peak until the late 2020s or early 2030s.
The US shale industry has been instrumental in America’s rise to becoming the world’s leading oil producer over the past 15 years, achieving energy independence through innovative fracking techniques. However, Stice now argues that geological constraints are outweighing technological and operational improvements, signaling a potential end to the era of continuous production growth.
In response to market conditions, Diamondback is implementing significant operational cuts, including the removal of three drilling rigs and one fracking crew, resulting in a $400 million reduction in its annual budget. The company has revised its production outlook to approximately 488,000 barrels per day for the year, down from its previous estimate of 492,000 barrels per day.
The industry-wide impact is becoming increasingly apparent, with other major players such as EOG Resources and Matador Resources also scaling back operations. Nabors Industries reports that shale producers are planning to reduce drilling rigs by 4% by year-end, based on a survey covering nearly half the industry.
This shift comes as US oil futures have dropped roughly 20% since early April, when new trade tariffs triggered global economic concerns. Simultaneously, OPEC and its allies have announced plans to increase oil supplies beyond market expectations, partly due to internal disputes over production quotas.
The situation has created tension within the US energy sector, with industry leaders expressing growing frustration. US Energy Secretary Chris Wright attempted to calm concerns during a recent Oklahoma visit, suggesting that trade war-related disruptions would be temporary.
Analysts at KeyBanc Capital Markets suggest that Stice’s final shareholder letter as CEO might have been aimed as much at Washington policymakers as at company investors. The message comes at a crucial time for the industry, with Stice scheduled to step down as CEO at the upcoming annual shareholder meeting.
Diamondback’s fracking crew estimates indicate a 15% reduction this year, with further decreases expected as operators respond to unprofitable oil prices. Stice described the company’s strategy as cautiously reactive, ready to either increase or decrease production based on market conditions, comparing it to approaching a traffic light where they’re prepared to either accelerate or brake as needed.