The US shale oil industry is facing a significant threat as crude oil prices plummet due to the ongoing trade war initiated by President Donald Trump. The sudden drop in oil prices has left many producers in Texas struggling to break even, leading to concerns of potential rig closures and industry failures.
Since Trump’s announcement of tariffs, US oil prices have fallen by 16%, dipping below the threshold that many Texas producers need to be profitable. This price decline has been exacerbated by OPEC’s decision to increase production, further impacting the already fragile state of the industry.
Kirk Edwards, the president of Latigo Petroleum, likened the current situation to the 2020 price crash that resulted in numerous bankruptcies across the shale sector. He expressed concerns about the potential devastating impact on the Permian Basin, the heart of the US oil industry.
Oilfield services worker Andy De La Rosa echoed these sentiments, drawing parallels to previous price crashes that led to widespread layoffs and economic turmoil in the industry. The current situation, with oil prices hovering in the $50 range, has raised fears of a global glut and further job losses.
Bill Smead, the chief investment officer at Smead Capital Management, warned that the trade war could lead to a significant consolidation in the industry, with stronger companies acquiring struggling ones. The uncertainty created by the tariffs has also made investors wary of oil and gas businesses, adding to the industry’s challenges.
The recent turbulence in global equity markets, triggered by Trump’s trade war, has further added to the industry’s woes. Oil prices experienced a brief rally when Trump announced a pullback from harsh tariffs, but they remain far from their previous highs, leaving many producers in a precarious position.
Analysts predict that many US shale producers will struggle to turn a profit with oil prices below $60 a barrel, especially in older basins. Rystad Energy estimates that the break-even cost for many shale producers is around $62 a barrel when factoring in debt servicing and dividend payments.
The potential demand shock has been exacerbated by Saudi Arabia’s decision to increase oil production, putting further pressure on prices. The fear of a price war and the risk of being priced out of the market has added to the industry’s challenges.
While the current situation is not as dire as the 2020 crash, the industry is bracing for tough times ahead. The lessons learned from the previous downturn have allowed producers to adopt a more cautious approach, but the uncertainty created by the trade war and falling oil prices has once again put the US shale industry on shaky ground. US oil production has been on a rollercoaster ride since the 2020 shock, reaching a record high of over 13 million barrels per day in 2024. However, analysts who had anticipated even greater levels of production this year are now reconsidering their forecasts, with the possibility of a decline in output for the first time since the pandemic.
According to S&P Global Commodity Insights, the potential for oil prices to drop to $50 could result in a decline of more than 1 million barrels per day. This is a significant shift from the previous administration’s goal of rapidly increasing output to drive down petrol prices in the US.
While many American oil executives supported former President Trump in the last election, they are now facing challenges under the current administration. Some executives have expressed dissatisfaction with the White House’s energy strategy and are calling for a more cohesive plan moving forward.
President of Diamondback Energy, Kaes Van’t Hof, took to social media to express his concerns, tagging Energy Secretary Chris Wright in a post urging for a solid plan. Van’t Hof highlighted the contributions of the oil industry to the US economy, emphasizing job growth and improvements in the trade deficit over the past decade.
Adrian Carrasco, owner of Premier Energy Services in the Midland-Odessa region, remains cautiously optimistic despite the potential decline in oil production. He noted that many shale producers hedge their oil prices for several months, providing some stability. However, Carrasco expressed concerns about the impact of tariffs on industry costs, particularly the increase in prices for drill pipe, which could pose challenges for companies adjusting to higher expenses.
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