Slumping Oil Prices Pose Challenge to 'Drill More, Drill Harder' Approach
Rewritten Article:
Andy, a small-time Oklahoma oilfield operator, is in a pickle. He's been a Republican for ages, and initially loved Trump's drill, baby, drill mantra. But now, he's feeling the heat. You see, more drilling by big oil firms could lead to lower oil prices – exactly what dear old Trump wanted to balance out inflation.
But then came the unpredictable tariff tango, another threat to oil prices. "I'm lost," Andy murmurs, "I don't even get the full price of WTI oil that's hovering around $65 a barrel." He asked for my two cents on falling crude oil prices, so here we go.
What's Behind the Oil Price Plunge?
Remember when WTI crude was around $68 a barrel in mid-March? Well, it dropped like a stone to $55 a barrel on April 9 after Trump announced 10% tariffs on goods from at least 180 countries. Tariffs were put on ice for 90 days on April 8, except for China where mutual tariffs soared above 100%. For the week ending April 18, WTI was at $65, as per OilPrice Intel. At $65, Andy says it's tough to make a buck.
Higher tariffs mean it costs more to import steel goods, U.S. steel prices will go up, and it'll cost more to drill new wells. This could hinder U.S. production, as does lower oil prices.
Canada, Brazil, and Kazakhstan have agreed to boost their oil production in response to the new tariffs. OPEC + plans to add 2 million barrels of oil per day (MMbopd) over the next 18 months.
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After a boost of almost 1 MMbopd in 2023, the Energy Information Administration (EIA) expects growth of only 0.27 MMbopd in 2024, resulting in total U.S. crude production of 13.3 MMbopd in 2024. The growth for 2025 will also be low, at 0.30 MMbopd, with practically no growth anticipated in 2026 (Figure 1).
The EIA has predicted $63.9 a barrel for WTI in 2025 and $57.5 in 2026. Two major reasons for the decrease in crude oil prices are: one, uncertainty in global oil demand, and two, extra supply from OPEC+ members.
Separate analysis suggest U.S. GDP growth might drop by 15% this year due to Trump's global trade war, which could push down oil demand by as much as 50%.
The report quotes a senior industrial analyst saying, "Oil companies typically produce more when the market price for a barrel is at least $70 and throttle back when prices get near $50."
EVs and Oil Production
BP said a year ago that global oil production would peak around 2030 mainly because gasoline cars and trucks would switch to electric motors.
Last year, global EV sales grew exponentially, but that was largely due to China. But since then, growth has been more linear, meaning steady growth, with China still leading the way. The global increase in 2024 was by 25%.
In the U.S., new EVs jumped 49% in 2023, but growth slowed to 7% in 2024. Reasons include: one, the Tesla stock slump due to Elon Musk's drastic cuts to government employees; two, potential rescinding of tax credits for EV buyers by the Trump administration; and three, tariffs on imports of minerals and battery components, especially from China, the major supplier to the U.S.
So, what about 2025? EV sales are up 11% in the first quarter compared with 2024, with 300,000 EVs sold. It's a picture of gradual, steady growth of EV sales in the U.S., with General Motors, Ford, Hyundai, and BMW seeing rising sales, but not Tesla. Slower EV sales elsewhere and in the U.S. might push back the date of peak oil a few years beyond 2030, but predictions from various oil and gas giants remain close to 2030.
Low Oil Prices Mean Rigs Are Laid Off
The oil price needed to cover a company's production costs, capital expenditures, and dividend payouts is called the breakeven price. When oil prices drop, the first action is to halt drilling new wells, which means letting go of drilling rigs. The peak oil rig count was 888 in the U.S. in 2018, the year of the fracker. In March of 2025, the count was 506 rigs. The industry has improved its capital efficiency, enabling it to produce the same amount of oil with fewer rigs. The U.S. is now producing more oil than ever: 13.5 MMbopd.
$65 a barrel is the average breakeven price of oil to drill a well and make a profit, on average, in the regions of Texas, New Mexico, and Louisiana. If oil prices dip below this level and keep falling, the guideline is rigs would be let go in this order:
- Powder River
- Bakken
- Niobrara
- Eagle Ford
- Midland
- Delaware
Existing wells is another story. The average operating expense is $41 a barrel. If oil prices fall below $41 a barrel, an operator will often shut in production.
- The falling crude oil prices Andy is concerned about are partly due to the 10% tariffs announced by Trump, which led to a decrease in WTI crude from $68 to $55 per barrel.
- Higher tariffs not only impact steel prices, making drilling new wells costlier, but they also contribute to hindering US production due to the increased cost associated with imports.
- Andy's breakeven price for drilling a well and making a profit in the regions of Texas, New Mexico, and Louisiana is around $65 a barrel. If prices dip below this level, rigs may be released based on the order listed: Powder River, Bakken, Niobrara, Eagle Ford, Midland, Delaware.
