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First Look - US producers to scale back drilling amid oil slump

Oil rises from a four-year low
- WTI prompt-month contract rose $1.47 to $58.60/Bbl early Tuesday morning (7:30 AM CT)
- Price rebounded overnight after the previous day's drop, when OPEC+ confirmed plans to raise output
- The return of Chinese market participants from a five-day holiday helped lift prices, with traders anticipating a pickup in post-holiday demand
US producers to scale back activity
- Diamondback, the largest independent oil producer in the Permian, believes US shale production has likely peaked
- The producer expects onshore oil rigs across the US to decline nearly 10% by the end of Q2, with further reductions to follow
  - The company is cutting three drilling rigs and one frack crew
- Coterra Energy also announced it is scaling back drilling due to weak crude prices
  - The company plans to reduce its Permian rig count by 30% in the second half of the year, down to seven
- WTI has dropped about 20% since early April, when President Trump announced broad tariffs that triggered a global trade war

Natural gas is trading higher, although prices are down from recent highs
- The June NYMEX contract has dropped about 15c from yesterday’s high of $3.74/MMbtu, after rallying more than 70c last week (8:20 AM)
- Lower-48 population-weighted average daily temperatures are forecast to rise to 70°F from 65°F over the next two weeks, supporting higher power demand
- As is often seen on Tuesdays, production is lower this morning, at 104.6 Bcf/d, according to data from S&P
  - These drops are often later revised higher
LNG feedgas demand drops amid maintenance (S&P)
- Cameron LNG has taken down one of three liquefaction trains for maintenance, reducing total US feedgas demand to 14.5 Bcf/d
- A timeline for when the facility should be back to full capacity was not given, but previous maintenance events have lasted three or four weeks
- LNG facility maintenance events are usually clustered around May and June
- Sabine Pass LNG is expected to see flows drop by a substantial amount in early summer due to a maintenance event