US president Donald Trump's back and forth over tariffs that sent oil prices tumbling to a four-year low last week has sparked jitters across the shale patch, although most producers are likely to take their time to respond.
The oil and gas industry, one of Trump's biggest cheerleaders and donors during his election campaign, has been taken aback by the speed and scale of the president's escalating trade wars and executives are signalling growing impatience. Meanwhile, Trump's "Drill, baby, drill" mantra is even less likely to become a reality now, after oil slid below the $65/bl level that executives surveyed by the Dallas Federal Reserve Bank last month warned was needed to profitably sink a new well.
Trump's imposition of punitive tariffs on nearly every major US trading partner led to a sell-off in stock, bonds and commodity markets until he announced a 90-day pause for most nations — except China — on 9 April.
While it may be too early for talk about dropping rigs and curtailing production, companies will face tough questions from analysts about their contingency plans when first-quarter results start coming through later this month. One key difference from previous downturns in 2014 and 2020 is that exploration and production (E&P) firms are in a better position this time, with less debt on their balance sheets and more modest growth plans, which may help limit the initial fallout. But higher costs owing to tariffs on steel imports could offset the efficiency savings that have kept production going in an era of restrained spending. "E&Ps are likely to mostly take a wait-and-see approach — with a high level of uncertainty about future policy — and not prematurely lay down rigs," consultancy Enverus principal analyst Andrew Dittmar says. "If prices are weak headed into 2026, that is where you are likely to see a more material reduction in drilling budgets.
Feeling dominated
The shale industry has welcomed Trump's "energy dominance" agenda and his promise of a permitting overhaul. But cracks are appearing in that relationship because of his stop-start policy on tariffs. "This administration better have a plan," Diamondback Energy president Kaes Van't Hof said in a social media post, in a direct appeal to energy secretary Chris Wright. Shale is the "only industry that actually built itself in the US, manufactures in the US, grew jobs in the US and improved the trade deficit — and by proxy GDP — in the US over the past decade", Van't Hof, who is due to become Diamondback chief executive later this year, said. His company became the largest pure-play producer in the prolific Permian basin of west Texas and southeast New Mexico following its $26bn takeover of Endeavor Energy Resources last year.
While few public producers were planning any kind of meaningful growth this year as higher dividends and buy-backs continue to be the priority, even that could eventually find itself on the chopping block. "The corporate reality for public players means that already modest growth could be at risk if prices remain near $60/bl," Rystad Energy vice-president for North American oil and gas Matthew Bernstein says.
Little in the way of growth was forecast outside the core Permian this year even before Trump rolled out his tariffs. A prolonged period of lower prices could spur a downturn in the top-performing US basin. A combination of short-term activity levels, investor distributions and production could be sacrificed in order to defend margins, according to Rystad. And producers in the Delaware sub-basin could be especially vulnerable, given the region's steep initial decline rates, high well costs and large capital return requirements, the consultancy says.
