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Oil benchmarks dip below $60 a barrel amid trade war fears

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Oil companies may cut capex, halt buybacks, analysts say

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Analysts expect cautious tone in April earnings

By Arunima Kumar

April 9 (Reuters) - A plunge in oil prices below $60 per

barrel due to an escalating trade war may trigger anxiety across

the U.S. oil patch, likely forcing companies to double down on

measures including cuts to share buybacks and capital

expenditures, analysts have said.

Brent crude and West Texas Intermediate (WTI)

futures slid to their lowest since February 2021, as sweeping

tariffs imposed by U.S. President Donald Trump sparked concerns

of a recession amid signs of higher supply from top producers.

Raymond James analyst Pavel Molchanov said some producers

might reduce 2025 capex if the downturn persists, though broader

cuts will depend on the depth and duration of the slump.

"Share buyback is typically the 'flex variable' that can

easily move up and down depending on how much free cash flow is

being generated."

During the COVID-19 crash in 2020, when oil demand collapsed

and prices briefly turned negative, Exxon Mobil ( XOM ) slashed

capital spending by 30%, while Chevron ( CVX ) cut its budget by

$4 billion and paused its buyback program.

ConocoPhillips ( COP ) had also trimmed spending and halted

repurchases.

Although oil companies are now leaner and more disciplined,

higher service costs and energy transition spending have

narrowed financial buffers.

EXPECTING BREAKEVEN

While many operators benefit from low breakeven costs in the

Permian Basin - which is expected to contribute nearly all of

the U.S. Lower 48's production growth this year - paying high

dividends can put financial pressure on companies working in

costlier, less profitable oil fields.

Rystad Energy estimates many U.S. oil producers now face

all-in breakeven prices above $62 a barrel, including dividends,

debt service, and return targets.

"Some combination of near-term activity levels, investor

payouts or inventory preservation will need to be sacrificed in

order to defend margins," said Matthew Bernstein, vice president

at Rystad.

The crude slump has cast fresh scrutiny on how U.S. oil and

gas firms plan to maintain shareholder returns amid tighter

margins.

RBC Capital Markets estimates Exxon's breakeven to cover

both dividends and buybacks is $88 per barrel for 2025.

Chevron's ( CVX ) is even higher, at $95 per barrel.

"The corporate reality for public players means that already

modest growth could be at risk if prices remain near $60 per

barrel," Bernstein said.

Earnings reports later this month will offer insight into

whether producers will stay the course or pivot toward cash

preservation.

"We'll see where we are at the end of April and early May as

to whether companies would cut capex or buybacks ... I'm sure

we'll get cautionary language about the outlook if weakness were

to persist," said Arjun Murti, a partner at energy consultancy

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