Rystad Energy predicts that the decline in crude oil prices will slow down US production.
Following US President Donald Trump’s announcement on April 2nd of new tariffs, global stock markets plunged to their lowest point since 2020.
Oil prices have fallen to their lowest level in four years as investors worry that an all-out war will decimate the global demand for fuel.
Rystad Energy predicts that the US producers are at risk in this current environment of low prices, and may be forced to reduce their rate of production growth.
Matthew Bernstein is Vice President of North American Oil and Gas at Rystad. He wrote a comment in an email.
If oil prices stay near $60 a barrel, the modest growth of public companies could be put at risk.
Prices of oil below Breakeven Cost
Rystad’s estimate of the “all-in cost” for US oil companies is currently above $62, including higher hurdle rates and dividends, as well as debt service costs.
The price of West Texas Intermediate Crude Oil on the New York Mercantile Exchange at the time this article was written, stood at $60.85 a barrel. WTI is the benchmark for US crude.
Outside the Permian Basin, it is difficult to imagine a growth of production in the lower 48 US states.
Bernstein stated that if oil prices stay low, there will be a decline in production in 2025 resulting from a slower pace of growth in Permian oil, which is the most productive oil field in the United States.
According to Energy Information Administration, the oil production of the Lower 48 States in the week ending March 28 was 13,138 millions barrels per day.
Business models that are difficult to maintain
Rystad says that when oil prices drop below this level, it becomes difficult to maintain the current business model of US producers.
Bernstein explained that margins will be protected by sacrificing a combination of short-term activity, payouts to investors or stock preservation.
Different companies are sensitive to different factors. However, the activity and production of the company will be the most affected.
The policy whiplash created an uncertain environment for management teams, even though the impact of steel tariffs on well costs in 2025 may be limited.
Most of the increase in projected oil production for this year (excluding Alaska, Hawaii and Canada) is expected to come from the Permian basin. This oil-producing area spans parts of Texas and New Mexico.
The region has a large amount of oil reserves and, with the advancements made in extraction technology, it is now a major driver for US production.
Permian dynamics
The Permian is projected to grow faster than any other oil producing region in the United States.
The concentration of energy growth within a single basin highlights the importance it plays in the shaping of the US energy scene and its contribution to meeting the country’s needs for energy.
The Permian basin offers the best break-even price for commercial purposes, but the high dividends promised by Exploration and Production companies (E&Ps) threatens the growth potential of the basin.
It is particularly important for those with lower-profitable acreage.
Rystad energy says that public mid-caps operating in Permian’s Delaware basin will be particularly exposed if the oil price remains around low 60s for a prolonged period.
The first year of production is often marked by steep declines in output and high costs for these operators.
They also must meet significant capital requirements. Bernstein pointed out that they also operate in a market where the major corporations have consolidated most of their profitable inventories.
The post Why US Operators Could Be Forced to Reduce Oil Production Growth may be updated as new developments unfold.
