Yves here. We, like many others, have described how Trump’s economic policies are rife with contradictions. The impact of tariffs on his prized LNG ambitions are a prime example.
By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice
- President Trump’s tariff-driven price slump threatens America’s hard-won petroleum export surplus.
- Ongoing tariff uncertainty and volatile oil prices make budgeting and drilling decisions difficult.
- With a cash-flow breakeven around $62.50–$65/barrel, U.S. producers fear lower prices will stall new well drilling and long-term growth.
The Trump Administration insists that U.S. shale will survive lower oil prices and could work well and innovate further at current price levels of WTI crude prices of about $60 per barrel, and even lower.
The industry is not convinced.
While public statements from the oil lobby and oil producers welcome President Donald Trump’s rollback of regulations and eased permitting processes, executives are privately fuming about the administration’s perceived target to bring oil prices down to $50 a barrel.
Separately, the trade and tariff chaos in markets – triggered by President Trump’s tariffs, tariff pauses, and tariff exemptions – is depressing oil prices as analysts now believe a recession followed by lower energy demand is more likely to happen than not.
U.S. Petroleum Trade Surplus Undermined
With oil prices down by more than 15% from last year’s levels, American oil exports could fetch lower prices for export. This will dent the absolute value of the U.S. petroleum trade surplus, which America began to show with the surge in oil production in the shale revolution era.
Before the shale boom in the 2010s, the U.S. was running a deficit in petroleum trade as it was importing more crude and petroleum products than it exported.
The shale revolution flipped the trade position to a surplus for America, and the U.S. has been a net petroleum exporter every year since 2020.
President Trump’s tariff policies – which tanked oil prices and raised the odds of a recession – are undermining America’s petroleum trade surplus. That’s not a desirable outcome for an administration fixated on fixing trade deficits. Petroleum and energy trade, in fact, is one of the few sectors in which the U.S. has a large trade surplus in the dozens of billions of U.S. dollars annually.
Even if the EU, Japan, and South Korea pledge to buy and indeed buy more U.S. LNG and oil, part of the gains could be offset by weak prices and lower demand for energy in case all the tariff uncertainty brings about a global downturn or recession.
Weaker global demand for oil and gas would not support increases in U.S. oil production and doesn’t bode well for the future LNG export projects which need firm commitments to take the plans to final investment decisions.
“You claim that the energy industry is the darling of your economic plan, and you just made life very difficult,” Robert Yawger, director of the futures division at investment bank Mizuho Americas, told The Wall Street Journal.
U.S. Shale Growth At Risk
Then there is the issue of how the U.S. could sustain production to remain the energy export superpower it has been over the past few years.
U.S. Energy Secretary Chris Wright, the former boss at fracking firm Liberty Energy, remains bullish on U.S. oil production—and believes that the industry will not only survive but thrive even with oil at $60 or below.
Yet, the industry begs to differ—at least that’s what executives wrote anonymously in March in comments to the quarterly Dallas Fed Energy Survey for the first quarter.
“There cannot be “U.S. energy dominance” and $50 per barrel oil; those two statements are contradictory. At $50-per-barrel oil, we will see U.S. oil production start to decline immediately and likely significantly (1 million barrels per day plus within a couple quarters),” an executive at an exploration and production firm said.
“The U.S. oil cost curve is in a different place than it was five years ago; $70 per barrel is the new $50 per barrel,” the executive noted.
Another executive put it even more bluntly, “The administration’s chaos is a disaster for the commodity markets. “Drill, baby, drill” is nothing short of a myth and populist rallying cry. Tariff policy is impossible for us to predict and doesn’t have a clear goal. We want more stability.”
Stability is the furthest from where the oil market has been in the past two weeks. Stability may be OPEC’s buzzword for ‘relatively high oil prices,’ but it is also crucial for the capital investment and drilling decisions in the U.S. shale patch.
Without any certainty about the cost of drilling wells – including the price of steel – producers face difficulty budgeting and maintaining shareholder payouts at current levels.
Drilling and ‘all-in’ corporate costs, including overhead, dividend, and servicing debt, amounts to a cash flow WTI breakeven of $62.50 per barrel for new activity in 2025, according to estimates by Rystad Energy.
Executives at U.S. firms think they need $65 per barrel, on average, to profitably drill a new well this year, per the Dallas Fed Energy Survey.
WTI Crude prices have already dropped below this level and were below $62 a barrel early on Tuesday.
Prices could drop further if global oil demand growth slows with weakening economies amid the trade and tariff chaos.
Even OPEC, the most bullish on oil demand of any forecaster, has just cut its 2025 and 2026 demand growth estimate.
In the monthly report on Monday, OPEC said it sees global oil demand growth at 1.3 million barrels per day (bpd) in each of 2025 and 2026, down by 150,000 bpd for each of the two years.
OPEC’s very bullish forecast (and it should be such if the OPEC+ alliance wants to continue justifying easing of the production cuts) is two to three times higher than most other growth estimates by major Wall Street banks.
After years of supporting oil prices with the production cuts, OPEC will also seek to regain market share at the expense of U.S. shale.
In this context, the U.S. Administration’s tariffs and the uncertainty they bring for American producers undermine the American energy dominance agenda.
Schumpeter …
So many opportunities will arise from the ashes!
This has always been one of the fundamental contradictions in Trumps policies. There is plenty of dispute around the ‘real’ breakeven cost of producing US oil, but its certainly very high. Much of the confusion comes from the opaqueness of the fracking industry. They’ve driven down costs very successfully over the past few years, but eventually this progress will meet the reality of the most productive beds being exhausted. Also, a key point about fracked oil and gas is that it is much more responsive to cost signals than conventional oil and gas. With the latter, the capital investment largely takes place before the first barrel is pumped, so once a well is opened the operator really has little choice but to keep producing at whatever price. With fracked wells, you need continual capital inputs to maintain production, so its supply is closely linked to current prices and the current cost of capital.
There is also the factor that while the production cost of countries such as KSA, Iran, Iraq and Russia are far lower than US costs (usually less than $20 a barrel), most of them need far higher prices in order to maintain their own budgetary needs. Russia seems to be the lowest, at around $40-45 to balance their budget, but Saudi Arabia may need it well above $80 to pay for their toys and dreams. Most of the big players have now a big incentive to produce as much as they can in the absence of a strong guiding hand from Opec. So we may well be entering a world of major oil surpluses if there is a recession. Unless of course there is a war somewhere.
And as I’m sure you know, PK, that’s just when the costs of extraction are considered. When viewed from the standpoint of EROI, these extraction methods and the fields they’re used on are drawing ever closer to the point where more energy will be expended to get the product and refine it to something usable than is ultimately produced by all that effort.
If you look at Howard Odum’s concept of embodied energy (Emergy), and include all the costs of production including exploration, development, drilling, transportation, refining, reclamation and, undoubtedly, many other costs, oil production may already be an energy losing proposition.
Time to restock the Strategic Petroleum Reserve?
On top of Trump’s desires for energy production, a growing group of independent analysts say the US is likely at or very near it’s peak oil production, geologically (absent some discovery of untapped oil reserves). Once you reach the peak geologically no amount of drill baby drill can reverse the decline. It’s just a fact of how the resource depletion works.
Better check to see if there is any oil under any of those National Parks or wilderness territories. No doubt Trump would authorize drilling there it being a national emergency – but would then export that oil overseas.
The U.S. sold Teapot Dome in 2015 to (!) Stranded Oil
Yes, but to quote the great Ronald Reagan, “Facts are stupid things.”
I’m still of the mind that this administration wants to drive oil prices down to offset the economic risks from war with Iran. Something else to consider is that affordable e-bikes from China are very popular and putting a real dent in demand in places where the majority of car trips are under 5 miles.
Further complications:
* The great US oil beds are “turning”, meaning that they are aging. Young oil fields yield more “heavy” oil (useful for diesel, fuel oil, tar) while old fields yield more “tight” oil (useful for gasoline and natural gas, which is dissolved in the oil like CO2 in soda water) and polluted water (oily, salty). Without a market for the natural gas component, nobody wants to pump the oil out.
* We have been exporting our oil because our available refineries are specialized for heavy oil, but we pump lighter oil.
* The world supply of oil tankers is tight, and getting tighter for the next few years. Many tankers will age out and not be replaced, and it is not possible to replace them quickly. I think this means that we will have to buy more oil from South America because it does not have to be shipped as far as oil from Saudi Arabia (or Russia!). So it’s important to stop alienating Colombia and Venezuela.
Hmm, “we have been exporting OUR oil…”
The US imports Canada’s heavy crude oil and then refines it into more expensived products that it exports at a much higher price. (Making a profit.) As the link in article indicates, 60% of the ‘our’ imported oil comes from the now tariff-ed northern neighbor. It seems the price of US refined products can only go higher.
While it’s not energy, here is a good example of what’s happening in rhe world of soybeans and wheat.
The drop in purchasing of US wheat and soybeans is falling dramatically.
Because China isn’t buying them. They are being supplied by Brazil.
It didn’t start under Trump but Biden.
https://m.youtube.com/watch?v=nADbVedF7xw
Excuse me while I smack my forehead – who coulda guessed that Trump’s perineal deficiency is arithmetic. First the tariff formula and now oil prices. We are doomed.
If the linked Substack is even approximately right (and I think it is) then it’s all up for US oil & gas exports and even self-sufficiency within a very few years. Trump can bring that day forward but can’t delay it significantly.
https://thehonestsorcerer.substack.com/p/bye-bye-saudi-america