Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
On April 2, 2025, US President Donald Trump unveiled a tariff plan calling for a 10% baseline tariff on all imports, with select countries facing higher tariffs. In addition, the Organization of the Petroleum Exporting Countries and partners will raise crude production by 411,000 barrels per day in May.
Why it matters: Tariffs hurt oil prices, due to concerns over a weaker economic outlook. Increased production also exerts downward pressure on oil prices. Producers’ revenue largely depends on commodity prices, and revenue also influences their capital spending decisions.
The bottom line: We cut our fair value estimates for US shale producers by up to 4%. Of these, Devon Energy DVN hovers between 4 and 5 stars, while Occidental Petroleum OXY sits in deep 4-star territory. Devon and Diamondback Energy FANG were the most affected by lower oil prices.
We raise our Uncertainty Rating to High from Medium for Devon. The company has less inventory left relative to most of its US shale peers, so we think it makes sense to demand a higher margin of safety here.Hess HES and Range Resources RRC saw no impact to their fair value estimates. Range is a gas-focused producer, while we anchor our Hess valuation to deal-related impacts tied to its proposed acquisition by Chevron CVX.
Big picture: The OPEC+ announcement caught us by surprise, as the organization previously sent mixed signals. Russian Deputy Prime Minister Alexander Novak indicated OPEC+ could reverse its production increases if the market became oversupplied.
While conjecture on our part, OPEC+ could be trying to retake share from US shale, gambling that independents have drilled through their highest-quality inventory. Still, most US shale firms boast breakeven prices well below current oil prices.OPEC+ could simply also want to replace barrels lost from tighter US sanctions on both Venezuela and Iran. Higher oil supply could give Trump more leeway to restrict production elsewhere.
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