The US shale oil industry is confronting its most severe crisis in years, as a dramatic plunge in crude prices, spurred by President Donald Trump’s trade war, threatens to push many producers to the brink of bankruptcy. According to executives, the 12% drop in US oil prices since Trump’s “liberation day” tariff announcement last week has left parts of the industry in peril, with some producers in Texas now facing prices below the level needed to break even.
As Financial Times reports, the price drop, coupled with Opec’s recent decision to increase oil production, has raised alarm within the industry. Kirk Edwards, president of Latigo Petroleum, an independent producer based in Odessa, Texas, likened the current situation to the catastrophic 2020 price crash triggered by the Covid-19 pandemic, which led to widespread bankruptcies across the shale sector. Edwards warned that the combination of falling demand and Opec’s plans to ramp up supply could lead to “devastating events” in the Permian Basin, which is the world’s largest oilfield and the heart of US shale production.
The ongoing price turmoil has sparked concerns among industry executives and investors. Bill Smead, chief investment officer at Smead Capital Management, which holds shares in several shale producers, described the situation as a “bloody mess.” He added that Trump’s goal of reducing oil prices to $50 per barrel could result in the collapse of half the companies in the sector, triggering a wave of mergers and acquisitions, with stronger players picking up the pieces of weaker ones.
The sell-off in oil prices comes as Trump’s global trade war has shaken equity markets, causing widespread volatility. While Trump walked back some of his proposed tariffs on Wednesday, providing a brief relief rally in oil prices, analysts remain cautious about the longer-term outlook. The decision to leave tariffs on China — the world’s largest oil importer — will continue to weigh heavily on global crude demand, raising concerns about the ability of US shale producers to remain profitable.
At oil prices below $60 per barrel, many US shale operators, particularly those in aging basins, may be forced to halt drilling activities, lay off workers, and even idle rigs. Analysts at Rystad Energy estimate that many shale producers have a breakeven cost of $62 per barrel when factoring in debt servicing and dividend payments, leaving little room for profit at current prices.
Further complicating the situation is the looming threat from Saudi Arabia, one of the world’s lowest-cost producers, which may further increase its oil production to capture market share, pushing prices even lower. The decision by Opec to raise production by 400,000 barrels per day has already put pressure on crude prices, amplifying the financial strain on US shale producers.
The downturn has led to a significant drop in the stock prices of shale companies, with Occidental Petroleum and Devon Energy both seeing losses of more than 12% in the five days following Trump’s tariff announcement. While the crash is not as severe as the 2020 oil price collapse, which briefly saw US benchmark oil prices dip below zero, the current situation is still a major setback for the industry.
Despite this, US oil production has rebounded since the pandemic-induced slump, reaching a record high of more than 13 million barrels per day in 2024. However, production forecasts for 2025 are now being revised downward, with some analysts predicting a potential decline in output for the first time since the pandemic.
S&P Global Commodity Insights has warned that oil prices as low as $50 per barrel could lead to a reduction of more than 1 million barrels per day in US production, undermining the Trump administration’s goal of boosting output to reduce domestic petrol prices.
The turmoil has sparked criticism from some oil executives who had previously supported Trump’s energy policies. Kaes Van’t Hof, president of Diamondback Energy, voiced frustration on social media, urging the administration to address the challenges facing the shale industry. “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,” he said in a post aimed at Energy Secretary Chris Wright.
While some shale producers have hedged their oil sales for the next several months, providing a temporary buffer against the price drop, others are concerned about rising costs. Adrian Carrasco, owner of Premier Energy Services, noted that tariffs have already raised the price of drill pipe by 25%, further squeezing margins in an already challenging environment.
With no immediate resolution in sight, the US shale oil sector faces an uncertain future, as rising costs and falling oil prices threaten to undo the progress made in recent years. As Trump’s trade war continues to reverberate through global markets, the resilience of the shale industry will be tested like never before.
