“Drill, baby, drill” has hit peak oil.
Oil and gas leaders have been saying for a while that oil production in the United States could be headed for a plateau — in a few years. Maybe it would start declining in the early 2030s.
Not many industry executives have been willing to use the word “peak,” much less say that the peak was happening — even as oil prices steadily sank.
But Travis Stice, the chair and CEO of Texas-based Diamondback Energy, said that part out loud this week. With fewer rigs and crews in the field, he told investors he sees output going down for the first time in a long time.
It is “likely that U.S. onshore oil production has peaked and will begin to decline this quarter,” Stice said in a letter to investors released Monday. “This will have a meaningful impact on our industry and our country.”
“Peak” is a strong word in the oil business. It brings back talk about the once widely held concept that the world was running out of oil. That view was largely put to rest in the 2010s when U.S. producers used advances in hydraulic fracturing to tap sources of oil previously considered too difficult and expensive to exploit. That led directly to the United States going from a net importer to the world’s top producer.
But that rise seems to be ending, if slowly. The shale business was maturing even before talk of tariffs started raising concerns about the U.S. economy and driving up the cost of steel. And geology has stopped cooperating. Many of the best sites for drilling have been tapped and it’s getting more expensive to get significant amounts of new oil out of the tight shale formations that fueled the country’s extended boom.
Now those tariff worries, economic uncertainty and talk of a global oil surplus are weighing on the closely watched price of oil. The benchmark U.S. crude spot price was $58.50 a barrel on Monday, according to the U.S. Energy Information Administration. That marked a drop of about $20 from the week before President Donald Trump took office in January. On Thursday, oil futures in New York were trading at about $60 a barrel.
The oil price is at depths rarely seen in the past 20 years, Stice said, and the U.S. oil business is at “a tipping point.”
It’s an ironic time for the boom to peak. Trump is enacting what might the most pro-oil agenda since the rise of the environmental movement, ripping protective regulations out by the roots and pushing new fossil fuel projects, sometimes with more fervor than the industry itself.
But that isn’t putting more drill bits in the ground. Diamondback said it is dropping three rigs and a completion crew at least until fall. Other big players are pulling back, too. On Thursday, Houston-based ConocoPhillips said it was lowering its capital spending plans for the year.
In a good sign for Trump, gasoline prices have remained relatively low. The U.S. average price for a gallon of regular gasoline was $3.152, AAA reported Thursday — nearly 49 cents cheaper than a year earlier. But experts say the drop is largely tied to economic uncertainty, not increased drilling.
The Trump administration says its efforts, in the long term, will both lower prices and let businesses prosper.
“While prices are going to move up and down in the short term, the Trump administration is focused on changing policies, changing the investment climate for businesses in this country, all big wins for the American people and why the President was elected in the first place,” Department of Energy spokesperson Ben Dietderich said in an email.
Nicole Schomburg, a senior director at FTI Consulting, which works with many of the oil and gas companies that drove the shale boom, says the U.S. industry is better prepared now than it was for recent price dives in 2014 and 2020.
“People have claimed we’re going to see peak oil or that the ‘shale bubble’ will burst for years. But that hasn’t happened,” Schomburg said in an email exchange, “and one of the big reasons why is because the world has continued to demand more oil than many ‘experts’ thought.”
But as the leader of a top independent producer in the country’s dominant Permian Basin oil play, Stice’s words carry some weight. And the geological “headwinds,” he said, are starting to outweigh the “tailwinds” the industry had enjoyed from technological advances and finding new efficiencies.
The head of Occidental Petroleum is also using what might be called “the p-word,” if a bit less strongly. In an earnings call Thursday, CEO Vicki Hollub said the company had expected a peak in U.S. production sometime between 2027 and 2030, but the growing economic uncertainty means “it’s looking like peak could come sooner.”
Trump’s outreach to the oil barons always had a contradiction at its heart. “Drill, baby, drill” sounds great at a rally. But it doesn’t necessarily go over as well in a boardroom where company leaders want demand to go up along with prices.
Oil executives worried during the 2024 presidential campaign about the prospect of a trade war that could dampen the economy and cool demand. Still, backing Trump was an easy call for many oil executives even as oil production hit world records under then-President Joe Biden.
Trump wooed them with promises of deregulation, and they showered him with millions of dollars to fuel his return to power. And the president has delivered on deregulation with an avalanche of executive orders dismantling Biden’s agenda aiming at reining in the effects of climate change.
As welcome as those orders may be for oil producers, they can’t make up for the lower demand caused by the forces that Stice recounted to his investors — global economic worries and a looming boost in supply from OPEC+ producers around the world.
Diamondback estimates that the number of fracking crews is down 20 percent in the Permian this year. That means it’s down about 15 percent across the country, said Stice, who later this month is set to give up his CEO title and become executive chair of the company he’s run as chief executive since 2012. The oil rig count, he said, will likely be down 10 percent by the end of June and still headed downward.
Tariffs are starting to bite as well. At Diamondback, Stice said, they have driven up the cost of casing more than 10 percent. For his company, that adds up to nearly $40 million annually.
Still, he isn’t saying drilling is going to stop. Stice said in his letter that Diamondback would produce 480,000 to 495,000 barrels of oil a day this year, down slightly from an earlier estimate.
“To use a driving analogy, we are taking our foot off the accelerator as we approach a red light,” Stice said in his letter. “If the light turns green before we get to the stoplight, we will hit the gas again, but we are also prepared to brake if needed.”
A green light, he explained during an earnings call this week, means an oil price of $65 to $70 per barrel. That’s about $5 to $10 higher than benchmark U.S. oil futures were trading Thursday.
Reporter Shelby Webb contributed.
