US oil and gas producers are expected to reduce their capital budgets in response to tariffs imposed by the Trump administration and retaliatory measures from other countries. Analysts predict that these developments will lead to increased drilling costs and general macroeconomic challenges, potentially decreasing demand for oil and gas products. Entering the year, oil-weighted producers were already facing a negative outlook, with forecasts from entities like the US Energy Information Administration predicting WTI prices below $70 per barrel by 2025.
Tariff-related declines have further impacted energy commodities and equities, prompting operators to consider restricting spending and limiting production growth. As of April 4, NYMEX WTI futures were at $60.78 per barrel, down 13% in just two days. By April 7, prompt-month WTI had decreased another 1%-2%.
Similarly, summer 2025 gas futures fell significantly, indicating a broader trend of declining prices. Analysts from ClearView Energy Partners noted that weaker oil prices could significantly reduce US upstream activity. In this climate of capital discipline, companies might be slow to increase drilling when prices recover.
Truist’s analysts warned that if commodity prices keep falling, some US exploration and production (E&P) companies might report negative free cash flow this year. They noted a shift in focus toward debt repayment, although options may be limited due to the need for capital reinvestment to maintain production levels. Even prior to the tariff announcements, US E&Ps were expected to reduce capital expenditures for the year by 2.5% compared to the previous year, according to S&P Global.
The anticipated organic production growth for 2025 is estimated at just 1%. With prices hovering around $60 per barrel, the viability of the current business model could be compromised, necessitating sacrifices in activity, investor payouts, or inventory preservation to maintain margins. In comparing oil and natural gas, some analysts believe the latter may be more stable.
The impending rise in demand from new LNG projects, combined with the prominence of associated gas in domestic production, could provide a buffer against fluctuations in the oil market.