US shale oil producers are facing their gravest threat in years, as a sudden crude price sell-off triggered by Donald Trump’s trade war has pushed parts of the sector to the brink of failure, executives have warned.
US oil prices have fallen 12 per cent since Trump’s “liberation day” tariff announcement last week, leaving them below the level many producers in Texas say they need to break even — and sparking fears the industry could be forced to idle rigs.
Opec’s recent decision to raise production has also raised alarm bells.
“This reminds me exactly of Covid,” 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.
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.
“We are facing a double whammy again,” said Edwards, adding that if prices did not recover in the next couple of months, there could be “devastating events” in the Permian Basin — the world’s most prolific oilfield and the engine room of the US industry.
Bill Smead, chief investment officer at Smead Capital Management, which owns shares in several shale producers, said the tariff war had created a “bloody mess” that risked scaring investors away from oil and gas businesses.
“Trump 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,” he said. “It would result in M&A with the strong picking up the pieces of the weaker players.”
The oil sell-off in recent days has been dramatic — and comes alongside huge turmoil in global equity markets triggered by Trump’s decision to launch a global trade war.
The US president on Wednesday said he was puling 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 — but they remain well off the highs this year and deep in the danger zone for many producers.
Analysts said Trump’s decision to leave tariffs on China — the world’s biggest oil importer — would continue to loom over global crude demand prospects.
Bill Farren-Price at the Oxford Institute for Energy Studies said: “There were quite a lot of pretty steady expectations for oil demand growth this year. I think they are all now in the bin.”
At less than $60 a barrel, many US oil producers will struggle to turn a profit, especially in some of the country’s ageing basins, forcing them to potentially stop drilling, lay down drilling rigs and let employees go.
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.
The potential demand shock has been worsened by fears that Saudi Arabia, one of the world’s 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.
Opec’s decision to add 400,000 barrels of oil a day to global supplies had put pressure on crude prices even before Trump’s trade war.
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 “reciprocal tariffs”.
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 — sending the shale industry into a deep freeze and causing thousands of job losses as scores of companies filed for bankruptcy.
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.
US oil production has recovered since the 2020 shock and hit a record of more than 13mn barrels a day in 2024.
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.
S&P Global Commodity Insights said this week that $50 oil could cause production to decline by more than 1mn b/d — a far cry from the Trump administration’s goal of fast output growth to drive down US petrol prices.
Many American oil executives backed Trump in last year’s election but are reeling from the price turn since he entered office. Some executives have grown critical of the White House’s energy strategy.
“This administration better have a plan @SecretaryWright,” Kaes Van’t Hof, president of Diamondback Energy, said in a social media post this week aimed at energy secretary Chris Wright. “The 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 . . . smart move.”
Van’t Hof did not respond to a request for comment.
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.
“It’s a worry, because now their pricing has gone up an additional 25 per cent for buying drill pipe. When that’s going up and your price of oil being purchased is not going up, well, you have to adjust.”
