Saudi Arabia's Oil Power Play Jolts Markets: Can Diamondback And Rivals Withstand The Pressure?

WTI crude oil futures slipped nearly 2% on Monday after OPEC+ announced it will increase production output by 411,000 barrels per day in June. This follows similar increases in April and May, bringing the total additional supply for those three months to 960,000 bpd and reversing about 44% of the voluntary cuts made since 2022.

What to Know: Saudi Arabia drove the decision to increase output. The country aims to discipline OPEC+ members like Iraq and Kazakhstan for exceeding their quotas and regain market share after years of output restraint. 

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Oil prices fell sharply in response to the OPEC+ production increase despite earlier news of escalating tensions in the Middle East and optimism over the possibility of trade negotiations between the U.S. and China. WTI crude oil futures hovered just below $57 per barrel and Brent crude oil futures were at $60 per barrel, according to Trading Economics. 

The United States Oil Fund USO ETF, tracking the daily price movements of WTI crude delivered to Cushing, Oklahoma, was down 1.91% at the time of publication. 

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Why It Matters: U.S. oil producers struggle to maintain profitability when the price of oil falls below $65 per barrel. 

Diamondback Energy, Inc. FANG stated in an April operational update that it is "closely monitoring the macro environment" and is prepared to reduce drilling and development activity if low oil prices persist. A reduction in drilling would help maximize free cash flow and protect the company's financial health in a weaker price environment. 

Diamondback Energy reports its first-quarter results after Monday's closing bell, along with Talos Energy, Inc. TALO and Coterra Energy, Inc. CTRA. Investors will be watching the reports and earnings call for the companies' outlooks on commodity markets, breakeven prices and potential activity reductions if weak prices persist. 

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Image created using artificial intelligence via Midjourney.