US oil, gas producers expected to tighten capital budgets amid tariff actions

The Trump administration's tariffs and countermeasures by other economies are expected to discourage capital spending by US oil and natural gas producers, which are worried about the prospect of higher drilling costs and general macroeconomic headwinds that could negatively affect demand for their products, according to analysts.

Oil-weighted producers were already facing a bearish outlook entering the year as entities, including the US Energy Information Administration, were forecasting sub-$70/b WTI for 2025. Recent tariff developments contributed to further declines in energy commodities and equities, fueling expectations that operators will seek to further restrict spending and limit production growth.

As of April 4 settlements, the balance-of-year NYMEX WTI futures strip was $60.78/b, down 13% from just two days prior, data from CME Group showed. The declines continued April 7 with prompt-month WTI down another roughly 1%-2% in the early afternoon.

NYMEX summer 2025 gas futures, which settled down 30-32 cents April 4, were down another 23-25 cents April 7. The prompt May contract was trading down 20 cents to $3.63/MMBtu in the afternoon, intraday data from CME Group showed.

Weaker oil prices in particular "could quash US upstream activity within months," analysts with ClearView Energy Partners wrote in an April 7 note to clients. "Likewise, in the current era of capital discipline and consolidation, operators may be slow to ramp up drilling activity when prices recover."

Truist's energy equities analysts said that if commodity prices continue to slide, it could mean some US E&Ps record negative free cash flow yields this year.

"We assume many E&Ps will begin to focus even more on debt repayment going forward though their options may be somewhat limited given capital needed for reinvestment/CAPEX to keep production relatively flat and if E&Ps decide to keep shareholder return at least at their minimum stated levels," the analysts said in an April 7 note to clients.

Production outlook

Even before President Donald Trump rolled out the suite of tariffs April 2, US E&Ps were expected to expend less this year than last as a group. Based on year-ahead guidance, oil and gas producers were planning a level of capital expenditures that is 2.5% lower than 2024, according to a March 10 report by S&P Global Commodity Insights upstream research analyst Andrew Byrne.

The rate of organic production growth assessed for the group, which includes oil-focused and gas-focused E&Ps of all sizes, was estimated at 1% for 2025, Byrne said.

The decline in prices could result in tighter budgets as it "means that already modest growth could be at risk if prices remain near $60 per barrel," Matthew Bernstein, VP of North American Oil and Gas for Rystad Energy, said in an April 7 market update.

"The business model embraced by US oil producers over the past several years becomes far more difficult to maintain with prices below this level. This means that some combination of near-term activity levels, investor payouts or inventory preservation will need to be sacrificed in order to defend margins," Bernstein said.

Activity and production levels will be where operators look first to cut costs, Bernstein also said.

Oil versus gas

Some assessed the US natural gas to be in a tighter position relative to the oil market, the latter of which has to accommodate the OPEC variable. Another reason is the wave of gas demand on track to come as new LNG projects start up and feedgas deliveries ramp, and still another is a consequence of associated gas making up a large share of total US dry gas production.

"Near-term natural gas seems like a better spot to hide than oil as there appears to be less gas surplus than oil especially when considering approximately 33% domestic natural gas production comes from associated gas and this production is likely to fall if oil prices remain pressured," Truist analysts said April 7.