Since Trump announced broader tariff measures last week on the so-called "Liberation Day," the U.S. WTI crude oil futures price has fallen by 12% cumulatively, breaching the break-even line for most shale producers in Texas, and raising concerns that the industry may be forced to idle drilling platforms.

In addition, OPEC's recent decision to increase production has also sounded alarm bells for American shale producers.

"We are facing a double blow again."

Kirk Edwards, president of independent producer Latigo Petroleum based in Odessa, Texas, said this reminded him of the time during the pandemic when oil prices plummeted and the shale oil industry saw a wave of bankruptcies.

At that time, the oil market was similarly threatened by both declining demand and OPEC's increased production. On April 3rd, OPEC announced that eight OPEC and non-OPEC oil-producing countries decided to increase daily production by 411,000 barrels from May. This increase far exceeded market expectations.

"We are facing a double blow again," Edwards said. If oil prices do not recover in the coming months, the Permian Basin may experience a "devastating event." There is a large sedimentary basin in western Texas and southeastern New Mexico. The rock deposits formed during the Permian period in this basin are among the thickest Permian deposits in the world, hence its name, the Permian Basin. This basin is famous for its oil production and is the engine of America's shale industry.

Bill Smead, founder and CEO of Smead Capital Management, an asset management company holding shares in several shale oil companies, said that the mess created by Trump's tariff war could scare away investors in the oil and gas industry.

"Trump wants oil prices to fall to $50 per barrel. If that happens, half of the companies in the industry will disappear. This will trigger a wave of mergers and acquisitions, with stronger companies taking over weaker ones' businesses," Smead said.

The Inglewood Oil Field pumpjack in Los Angeles, California. IC Photo

Reports indicate that the recent oil sell-off has been dramatic, coinciding with the significant turmoil in global stock markets triggered by Trump's decision to launch a global trade war.

On the 9th, affected by Trump's announcement of deferring high tariffs on multiple countries, the stock market surged significantly, and oil prices also rose. The average price of U.S. West Texas Intermediate (WTI) crude oil reached $63 per barrel but remained below the year's high point.

China is the largest importer of crude oil in the world. However, Trump has raised tariffs on China by 125%. The Financial Times believes that this will continue to suppress global energy demand expectations. Given the current situation of America's shale industry, many American oil producers, especially those in older production areas, may struggle to make a profit if the price of oil remains below $60 per barrel, and they may be forced to stop drilling, shut down drilling platforms, and lay off employees.

There are concerns that Saudi Arabia, one of the lowest-cost producers globally, may be preparing new actions to seize market share, such as increasing oil production to lower prices and force competitors out of the market.

Previously (April 3rd), Saudi Arabia, Russia, and other eight OPEC+ oil-producing countries held a video conference and decided to increase daily crude oil supply by 411,000 barrels starting in early May, which is three times higher than the original plan. This move has already put pressure on crude oil prices.

The market volatility has also triggered a sell-off of shale oil producer stocks, as these producers face higher production costs than traditional oil drilling. Occidental Petroleum and Devon Energy lost more than 12% of their market value within five days after Trump announced "reciprocal tariffs."

Since Trump announced the tariffs, half of the 20 worst-performing stocks in the S&P 500 index belong to the oil, natural gas, and petrochemical industries.

The Financial Times pointed out that the scale of this market crash is incomparable to 2020. At that time, due to the impact of the pandemic on global demand, U.S. benchmark stock prices briefly fell below zero, and the shale oil industry froze deeply, with dozens of companies filing for bankruptcy, resulting in thousands of job losses.

Although the industry recovered afterward, U.S. oil production set a record of over 13 million barrels per day in 2024. However, analysts who previously expected higher U.S. oil production this year are now adjusting their forecasts, believing there may be the first decline since the pandemic.

"The change in oil prices is shocking," industry executives called out.

This week, S&P Global Commodity Insights stated that oil prices at $50 per barrel could lead to a daily production reduction of over 1 million barrels, which is far from Trump's government goal of rapidly increasing production to reduce gasoline prices in the U.S.

It is worth noting that achieving America's energy dominance and Trump's administration's pursuit of $50 per barrel oil prices are contradictory. An anonymous executive said that if oil prices remain at this level, U.S. oil production "will immediately begin to decline, and the extent may be quite significant."

The Financial Times reported that many American oil executives supported Trump in last year's election, but since his inauguration, the changes in oil prices have shocked them. Some executives criticized the White House's energy strategy.

Kirk Edwards, former chairman of the Petroleum Association, said, "I don't know any industry that supports Trump more than the oil and gas industry. People are shocked by how quickly he pulled down oil prices."

Adrian Carrasco, owner of Premier Energy Services, said that many shale oil producers generally adopt short-term hedging strategies of 6 to 12 months to manage price risks, but tariffs will increase the cost of the industry. "This is a worrying issue because now the price of drill pipes has risen by another 25%. When drill pipe prices rise and oil prices do not, you must make adjustments."

Kaes Van't Hof, president of Diamondback Energy, called out to Energy Minister Chris Wright on social media this week, saying, "Over the past decade, the U.S. shale oil industry has developed domestically, created jobs, and improved the trade deficit. The U.S. government had better have a response plan."

This article is an exclusive piece from Observer Network and cannot be reprinted without permission.

Original source: https://www.toutiao.com/article/7491682836177568290/

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