President Donald Trump promised to increase U.S. oil and gas production, campaigning on the motto of “drill baby drill,” but his expansive levies have fueled a global trade war and stoked concerns of demand destruction.
Brent crude, which was trading at $80.15 a barrel when Trump assumed office on January 20, is currently hovering at $66.65 a barrel, rebounding from as low as $58.40 on April 9. Higher crude output promised by the OPEC+ has also compressed the prices.
This has weighed on upstream spending, particularly in U.S. shale, where producers are prioritizing shareholder returns and debt reduction over output growth.
Further weakness in oil prices, particularly a sustained drop below $60 per barrel, and continued tariffs-related uncertainty could lead to a 20% contraction in domestic oilfield activity from current levels, analysts warn.
“At those depressed (activity) levels, E&P spending would be reduced, and E&P spending is the primary driver of demand for service companies,” said Stephen Gengaro, analyst at Stifel.
Morningstar analysts estimate that for every $5 decline in crude prices, U.S. shale spending falls by about 5%, compared to just a 1% dip in international markets.
Meanwhile, U.S. tariffs on steel and aluminum imports are poised to escalate costs for the oilfield service companies.
Halliburton and Baker Hughes will kick off earnings for the sector on April 22 with SLB wrapping up on Friday.
Since January, earnings per share expectations for the Big Three oilfield services have been revised multiple times, according to LSEG data.
Analysts on average now expect earnings per share of 60 cents for Halliburton vs 76 cents a year earlier, 48 cents for Baker Hughes vs 43 cents, and 74 cents for SLB vs 75 cents in the same quarter of 2024.
Adding to the bearish sentiment, Baker Hughes reported that the U.S. oil and gas rig count fell by seven to 583 in the week ended April 11 – the biggest weekly drop since June 2023.
Investors will be closely watching executives’ comments for clarity in an environment with very little near-term visibility.
“The first quarter is going to matter a lot less,” said Scott Gruber, energy analyst at Citi Research.
“All eyes are really turning to the future to assess where the oil service markets go from here.”
(Reporting by Vallari Srivastava in Bengaluru, writing by Mrinalika Roy; Editing by Sriraj Kalluvila)
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