NYT: US oil companies have to cut spending due to low oil prices

US oil companies are pulling back as lower commodity prices take a toll, Report informs via The New York Times.

After two months of crude oil prices hovering around $60 a barrel, companies are shutting down drilling rigs and laying off workers as they pare spending. It now appears very likely that US oil production will not grow much this year, if at all.

There are two main reasons for low oil prices. President Trump’s trade war is likely to slow the global economy, hurting demand for fuel. And OPEC Plus, an oil cartel led by Saudi Arabia, is increasing production of oil as demand is softening.

On May 31, eight members of the cartel are widely expected to announce plans to bring even more oil to market this summer, which could send prices lower still.

American oil companies are not waiting to find out.

While Exxon Mobil and Chevron are maintaining their spending plans, smaller companies are pulling back. Those focused on drilling for oil now plan to spend around 3.5 percent less this year than previously planned, according to a BloombergNEF analysis of a dozen publicly traded companies. All things equal, more drilling tends to drive oil prices down and less drilling generally props them up.

“We can’t run our program on hope,” Tom Jorden, chief executive of the oil and gas producer Coterra Energy, told analysts during an earnings call this month. “So we are battening down the hatches, expecting this to last for a while.”

The Houston-based company said it would drill less in the Permian Basin of Texas and New Mexico, the top US oil field, and more in the Northeast, which is rich in natural gas. Prices for that fuel, used in power plants and for heating, have been much more resilient.

Lower oil production is the opposite of what Mr. Trump promised during his campaign, which frequently repeated the chant “Drill, baby, drill.”

The pullback means that production in US shale basins, which generate most of the country’s oil, is likely to start declining later this year, according to the International Energy Agency, a Paris-based organization of industrialized countries including the United States.

The contraction could be swift if oil falls under $60 a barrel and remains there. For every dollar below that threshold, the IEA estimates, five drilling rigs could be pulled out of US fields. When companies drop rigs, workers often lose their jobs, hurting the economy of states like Texas.

Diamondback Energy, one of the Permian’s largest oil producers, said the heart of the US oil industry had already hit peak production. The country pumps more than 13 million barrels of oil each day, making it the world’s biggest oil producer.

“It is likely that US onshore oil production has peaked and will begin to decline this quarter,” Travis Stice, who until recently was chief executive of Diamondback, wrote in a May 5 letter to shareholders. “To use a driving analogy, we are taking our foot off the accelerator as we approach a red light.”

Diamondback cut its annual spending forecast by 10 percent.