Trade war drags down U.S. oil industry, drilling expected to slow

U.S. drilling activity is expected to slow dramatically this year, weighed down by tariffs, erratic policy from the Trump administration, weak demand and economic malaise.

Oil prices dropped sharply in the past few weeks, collapsing immediately after Trump launched a trade war against much of the world.

In the heart of the Permian basin, companies need oil prices to trade between $62 per barrel just for them to break even, according to a survey by the Dallas Federal Reserve. Other parts of the U.S. shale complex need higher prices. And $62 per barrel is just a rough average; many individual companies need much higher prices in order to profitably drill a well.

Moreover, those figures also do not include debt servicing, dividend payments, or other costs. Most notably, the enormous cost of cleaning up wells is always omitted from such estimates. That staggering sum, which could run into hundreds of billions of dollars, may eventually be forced onto taxpayers, as drillers often try to avoid paying for clean-up.

Nevertheless, oil prices have collapsed below levels needed to spur new drilling. And few analysts expect things to turn around anytime soon, barring a dramatic reversal by Trump on his trade policies.

WTI prices could average $59 per barrel for the rest of 2025, dipping to $55 per barrel in 2026, according to Goldman Sachs.

Those are not prices that can sustain U.S. production. For instance, if WTI oil prices were to hover at $65 per barrel, it would result in the industry shedding 25 oil rigs and would lead U.S. oil production to stagnate, Citigroup said in a note in mid-March.

Roughly 50 rigs could disappear with oil at $60, and 100 rigs would be dropped if prices fell to $55, according to J.P. Morgan. And for every loss of 50 rigs, U.S. oil production would decline by roughly 500,000 barrels per day and gas output would drop by 1.5 billion cubic feet per day.

In a separate note to clients, J.P. Morgan analysts noted that the Trump administration has openly supported a drop in prices towards $50 per barrel, reducing the odds that they will come to the industry’s rescue. “The price floor is now much lower,” the bank said. “US shale producers will bear the brunt of these developments, with our projections indicating a cut of 115 rigs starting in July, leading to a contraction in US crude and condensate production in 2026.”

At $50, “you will see the Permian Basin roll over” Bryan Sheffield, a managing partner of Formentera Partners LP, an energy investment firm, told Bloomberg. “Once that starts rolling over, it will be impossible to get it back to increasing its production above the treadmill.”

To be sure, much of this is still speculation. Trump’s trade war is volatile and unpredictable. There are signs that the pressure is getting to him and he may be looking for a way to back down.

But to some extent, the damage is already done.

Matador Resources became the first notable shale company to cut its drilling plans, announcing that it would slash spending by $100 million and reduce its rig count by one. In an earnings call, Halliburton, one of the top oilfield services firms in the U.S., warned that some of its drilling fleets could see “higher than normal white space” — referring to periods of time when they are not booked up — “and in some cases the retirement or export of fleets to international markets.”

ConocoPhillips said it plans on eliminating staff later this year. Eni is cutting capex.

With first quarter earnings season now underway, there could be many more such announcements.

The trade war is unfolding against a longer-term story of uncertainty, and tariff chaos is deepening negative employment trends that were already underway.

In February, Chevron said it would cut thousands of employees from its payroll as it sought to shore up its finances and keep funding shareholder payouts.

It doesn’t look like the jobs will be coming back. The industry is increasingly shifting towards a trend of offshoring some of its high-end engineering work. Chevron, BP, and other oil companies are moving white-collar jobs out of the U.S., instead hiring professionals in India to do the same work for a fraction of the salary.

Anger and uncertainty in U.S. shale 

President Trump has championed the oil and gas industry while he is simultaneously smashing the fortunes of the entire sector. The 25 percent tariff on steel is driving up the cost of new drilling, pipelines, and LNG export terminals. Even as costs rise, his trade war has caused prices to crater.

Much of the U.S. oil and gas industry has kept quiet about the darkening outlook for their sector.

But cracks are starting to show. The CEO of Diamondback Energy posted on X: “This administration better have a plan @SecretaryWright,” issuing one of the few public criticisms from the oil industry against the Trump administration.

While many executives are gritting their teeth and keeping a low profile, there was widespread anxiety and anger already on display even before Trump’s “Liberation Day,” which dramatically exacerbated the financial squeeze on the industry.

In a quarterly survey from the Dallas Fed of Texas-based oil executives, released in March, respondents (anonymously) vented their outrage.

“There cannot be ‘U.S. energy dominance’ and $50 per barrel oil; those two statements are contradictory,” one Texas oil executive said. “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).

“The administration’s chaos is a disaster for the commodity markets. ‘Drill, baby, drill’ is nothing short of a myth and populist rallying cry,” another said.

“I have never felt more uncertainty about our business in my entire 40-plus-year career,” yet another executive lamented.

“Oil prices have decreased while operating costs have continued to increase. To stimulate new activity, oil prices need to be in the $75-$80 per barrel range.”

Of course, the deterioration in prices is a reflection of expectations that global demand will continue to weaken.

The three main global energy forecasters — the IEA, the U.S. EIA, and OPEC — all downgraded their oil demand forecasts for this year. The IEA, for instance, cut its projection for oil demand from 1 million barrels per day in 2025 to just 700,000 barrels per day. The numbers vary depending on who is doing the analysis, but there is a broad recognition that the oil market is heading for a protracted surplus, especially after OPEC decided to add production in the coming months.

In fact, the oil market is facing the largest supply glut so far this century, aside from 2020 — during the worst of the COVID-19 pandemic.

“While most oil plays are seeing deteriorating normalized productivity, US producers must also compete on a global market to meet an uncertain but likely decelerating demand outlook,” Matthew Bernstein, VP of North America oil and gas research at Rystad Energy, said in an analysis.

(Writing by Nick Cunningham; editing by Sophie Davies)