{"id":14366,"date":"2025-04-10T05:44:06","date_gmt":"2025-04-10T05:44:06","guid":{"rendered":"https:\/\/infundpros.com\/?p=14366"},"modified":"2025-04-10T05:44:07","modified_gmt":"2025-04-10T05:44:07","slug":"oil-price-plunge-puts-us-shale-production-in-peril","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=14366","title":{"rendered":"Oil price plunge puts US shale production in peril"},"content":{"rendered":"
\n

US shale oil producers are facing their gravest threat in years, as a sudden crude price sell-off triggered by Donald Trump\u2019s trade war has pushed parts of the sector to the brink of failure, executives have warned.<\/p>\n

US oil prices have fallen 12 per cent since Trump\u2019s \u201cliberation day\u201d tariff announcement last week, leaving them below the level many producers in Texas say they need to break even \u2014 and sparking fears the industry could be forced to idle rigs.<\/p>\n

Opec\u2019s recent decision to raise production has also raised alarm bells.<\/p>\n

\u201cThis reminds me exactly of Covid,\u201d said Kirk Edwards, president of Latigo Petroleum, an independent producer based in Odessa, Texas, referring to the 2020 price crash that brought a wave of bankruptcies across the shale sector.<\/p>\n

Then too, oil markets were facing the twin threats of falling demand and new supplies from Opec producers such as Saudi Arabia, which last week announced a plan to increase supplies faster than expected in the coming months. <\/p>\n

\u201cWe are facing a double whammy again,\u201d said Edwards, adding that if prices did not recover in the next couple of months, there could be \u201cdevastating events\u201d in the Permian Basin \u2014 the world\u2019s most prolific oilfield and the engine room of the US industry.<\/p>\n

Bill Smead, chief investment officer at Smead Capital Management, which owns shares in several shale producers, said the tariff war had created a \u201cbloody mess\u201d that risked scaring investors away from oil and gas businesses.<\/p>\n

\u201cTrump wants to get the oil price down to $50 and you will end up with half the number of companies in the industry if that happens,\u201d he said. \u201cIt would result in M&A with the strong picking up the pieces of the weaker players.\u201d<\/p>\n

The oil sell-off in recent days has been dramatic \u2014 and comes alongside huge turmoil in global equity markets triggered by Trump\u2019s decision to launch a global trade war.<\/p>\n

The US president on Wednesday said he was pulling back from the harshest levies he had planned, sending stock markets sharply higher. Oil prices also rose, with US marker West Texas Intermediate hitting $63 a barrel on Wednesday \u2014 but they remain well off the highs this year and deep in the danger zone for many producers.<\/p>\n

Analysts said Trump\u2019s decision to leave tariffs on China \u2014 the world\u2019s biggest oil importer \u2014 would continue to loom over global crude demand prospects.<\/p>\n

Bill Farren-Price at the Oxford Institute for Energy Studies said: \u201cThere were quite a lot of pretty steady expectations for oil demand growth this year.<\/em> I think they are all now in the bin.\u201d<\/p>\n

At less than $60 a barrel, many US oil producers will struggle to turn a profit, especially in some of the country\u2019s ageing basins, forcing them to potentially stop drilling, lay down drilling rigs and let employees go.\u00a0<\/p>\n

Rystad Energy said many US shale producers faced break-even costs of $62 a barrel of WTI when debt servicing and dividend payments were included. <\/p>\n

The potential demand shock has been worsened by fears that Saudi Arabia, one of the world\u2019s lowest-cost producers, could be poised to make a new move for market share by pumping more oil and allowing prices to drift lower, forcing rival producers out of business. <\/p>\n

Opec\u2019s decision to add 400,000 barrels of oil a day to global supplies had put pressure on crude prices even before Trump\u2019s trade war.<\/p>\n

The turmoil has also sparked a sell-off in the shares of shale producers, which face higher costs of production than conventional oil drilling. Occidental Petroleum and Devon Energy lost more than 12 per cent of their value in the five days since Trump announced his \u201creciprocal tariffs\u201d.<\/p>\n

The crash is not on the same scale as 2020. Then, the US benchmark briefly traded below zero as the Covid-19 pandemic crushed global demand \u2014 sending the shale industry into a deep freeze and causing thousands of job losses as scores of companies filed for bankruptcy. <\/p>\n

But the industry has staged a remarkable recovery since then, with Wall Street forcing producers to repair balance sheets and avoid costly drilling sprees. The new era of capital discipline has left producers in better shape to handle a new downturn, analysts say. <\/p>\n

US oil production has recovered since the 2020 shock and hit a record of more than 13mn barrels a day in 2024.<\/p>\n

But analysts who expected the country to reach even greater volumes this year are now walking back production forecasts, with the first decline in output since the pandemic now possible.<\/p>\n

S&P Global Commodity Insights said this week that $50 oil could cause production to decline by more than 1mn b\/d \u2014 a far cry from the Trump administration\u2019s goal of fast output growth to drive down US petrol prices.<\/p>\n

Many American oil executives backed Trump in last year\u2019s election but are reeling from the price turn since he entered office. Some executives have grown critical of the White House\u2019s energy strategy.<\/p>\n

\u201cThis administration better have a plan @SecretaryWright,\u201d Kaes Van\u2019t Hof, president of Diamondback Energy, said in a social media post this week aimed at energy secretary Chris Wright. \u201cThe only industry that actually built itself in the US, manufactures in the US, grew jobs in the US and improved the trade deficit (and by proxy GDP) in the US over the past decade\u2009.\u2009.\u2009.\u2009smart move.\u201d <\/p>\n

Van\u2019t Hof did not respond to a request for comment.<\/p>\n

Adrian Carrasco, owner of Premier Energy Services, which is based in the Midland-Odessa region, said he was not panicking because a lot of shale producers hedge the price of oil that they sell for six to 12 months. But he said tariffs would raise costs for the industry. <\/p>\n

\u201cIt\u2019s a worry, because now their pricing has gone up an additional 25 per cent for buying drill pipe. When that\u2019s going up and your price of oil being purchased is not going up, well, you have to adjust.\u201d<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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