Diamondback Energy expects a jump in crude oil production globally in the second half of the year, which could lead to a glut, the company’s chief executive said in a letter to investors.
At current oil prices, production in the shale patch has peaked, Kaes Van’t Hof wrote in the letter, adding that “the likelihood of a massive oil supply glut combined with an oil demand shock seems to have dissipated (on the demand side)”.
However, “the projected increase in global oil supply in the second half of this year is hard to ignore. Although projections are often incorrect in this sector, particularly when consensus is uniformly bullish or bearish (in this case, bearish), we still believe we are approaching a yellow light to pull from last quarter’s “stop light” analogy.”
In this environment, Diamondback will keep its output flat this year and reduce capital expenditure while maintaining a large drilled but uncompleted well inventory, the executive said.
Diamondback Energy is the largest independent producer in the Permian. The company reported average production of 496,000 barrels daily in the second quarter and trimmed its full-year production outlook. Diamondback, however, raised its gas production outlook, citing “better gas capture” in the second quarter of the year.
Shale drillers have been curbing activity amid depressed prices, and hiring has slowed, too, this year. Forecasters are expecting slower production growth this year and next because of the lower prices. The Energy Information Administration even expects a decline in output over the two years. In June, the EIA forecast that total U.S. oil production ill slide from 13.5 million bpd in the second quarter of this year to 13.3 million barrels daily by the end of 2026.
Kpler, the energy data analytics provider, also recently revised its U.S. oil production growth forecast, lowering it by 120,000 barrels daily to 170,000 bpd, citing oil prices.
By Irina Slav for Oilprice.com
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