US shale oil producers are encountering a significant threat due to a sudden decline in crude prices, a situation exacerbated by a trade conflict initiated by Donald Trump, according to warnings from industry executives. Crude oil prices in the US have declined by 12% since Trump’s announcement of tariffs, causing concerns among producers, particularly in Texas, who suggest that current prices are below their break-even levels. This has led to fears that the industry might need to idle rigs.
The recent decision by OPEC to increase production has also alarmed industry stakeholders. Kirk Edwards, president of Latigo Petroleum in Odessa, Texas, compared the current scenario to the 2020 price crash during the Covid-19 pandemic, which resulted in numerous bankruptcies within the shale sector. At that time, the oil market faced both declining demand and increased supplies from OPEC countries like Saudi Arabia, which recently announced plans for a faster-than-expected supply increase.
Edwards warned of a “double whammy,” indicating that if prices do not recover soon, there could be severe consequences in the Permian Basin, a crucial oilfield for the US industry. Bill Smead, chief investment officer at Smead Capital Management, emphasized that the tariff conflict has created significant turmoil, potentially deterring investors from oil and gas sectors. Smead suggested that Trump’s intentions to lower oil prices to $50 could result in industry consolidation, with stronger entities acquiring the weaker ones.
The recent dramatic sell-off in oil has coincided with volatility in global equity markets, spurred by Trump’s trade war declaration. While the US President announced a pullback from certain tariffs, which spurred a rise in stock and oil prices, these remain below ideal levels for many producers.
Analysts highlighted that Trump’s decision to maintain tariffs on China, a major oil importer, could negatively impact global crude demand. Bill Farren-Price from the Oxford Institute for Energy Studies noted a shift in expectations for oil demand growth this year. With oil prices under $60 per barrel, many US producers may struggle with profitability, potentially halting drilling activities and leading to job losses. Rystad Energy projected break-even costs of $62 per barrel for US shale producers when factoring in debt servicing and dividend payments.
The situation is aggravated by fears of Saudi Arabia’s potential market share strategy, which could further lower prices. OPEC’s move to add 400,000 barrels per day had put pressure on oil prices even before the trade war began. This turmoil has led to a sell-off in shale producers’ shares, affecting companies like Occidental Petroleum and Devon Energy.
Despite the current challenges, the shale industry is not facing a crisis of the same magnitude as in 2020 when the pandemic led to a collapse in demand and numerous bankruptcies. Since then, the industry has stabilized, driven by capital discipline and improved financial management. US oil production has recovered, reaching over 13 million barrels per day in 2024.
However, some analysts have revised their production forecasts, anticipating a potential decline in output for the first time since the pandemic if oil prices fall to around $50. S&P Global Commodity Insights cautioned that such prices could lead to a significant decrease in production, countering the previous administration’s objectives of production growth.
Many American oil executives, initially supportive of Trump, are now concerned by the current price downturn and critical of the administration’s energy strategies. Kaes Van’t Hof of Diamondback Energy expressed dissatisfaction on social media, questioning the government’s planning. Meanwhile, Adrian Carrasco of Premier Energy Services noted that while many shale producers have hedged their prices, tariffs could still increase industry costs, such as those for drilling pipes.
