Falling Crude Oil Prices Will Stall Out Drill Baby Drill

An oilfield operator who owns small stripper wells in Oklahoma is nervous. A long-time Republican, Andrew was initially happy with President Trump’s mantra of drill, baby, drill. But then he realized that more drilling by big oil companies would lower the price of oil, which was what Trump wanted to offset inflation.

Then came the on-again, off-again tariff games that are a new threat to oil price. Andrew lamented, “I just don’t know anymore. When I sell my oil, I don’t get the full price of WTI oil which is now about $65 /barrel.” Andrew asked me for my opinion on falling crude oil prices, so I offered the following.

What Is Affecting The Price Of Oil?

In mid-March the spot price of WTI crude was almost $68 /barrel. Oil fell to 55 dollars/barrel on April 9, after Trump announced on April 2 sweeping tariffs of at least 10% on 180 countries. Tariffs were paused on April 8 for 90 days, except for China where mutual tariffs shot up to above 100 percent. For the week ending April 18, WTI was at $65, according to OilPrice Intel. At $65, Andrew said its harder to make money.

Higher tariffs mean it costs more to import steel goods, U.S. steel prices will rise, and it will cost more to drill new wells. This can put a damper on U.S. production, as does lower oil price.

Canada, Brazil and Kazakhstan have committed to increase their oil production in response to the new tariffs. OPEC + members are set to add 2 MM bopd (million barrels of oil per day) over the next 18 months.

After shooting up in 2023 by almost 1 MMbopd, the EIA have predicted growth of only 0.27 MMbopd in 2024, leading to total U.S. crude production of 13.3 Mbopd in 2024. But the growth in 2025 will also be low, 0.30 MMbopd, and will drop to virtually no growth in 2026 (Figure 1).

EIA have predicted $63.9 /bbl WTI price for 2025, and $57.5 /bbl for 2026. Two main reasons for falling crude oil prices are, one, uncertainty in global demand for oil plus, two, the extra supply from OPEC+ members.

A separate analysis says U.S. growth in GDP could drop by 15% this year, due to President Trump’s global trade war. This could force growth of oil demand down 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 wind down production when prices get closer to $50 a barrel.”

Effect Of Electric Vehicles On Oil Production

BP said a year ago that global oil production would peak around 2030 mainly because gasoline cars and trucks would change to electric motors.

Through 2021, global EV sales numbers were increasing exponentially, but this was dominated by China. But in years since, through 2024, the increase in EV sales was more linear, meaning steady growth, with China still dominating. The global increase in 2024 was by 25%.

In the U.S., new EV’s surged 49% in 2023, but growth was muted at 7% in 2024. Reasons are first, Tesla stock has foundered, partly due to Elon Musk’s drastic actions in reducing government employees. Second, the Trump administration may rescind tax credits for EV buyers, and other policies such as funding new charging stations. Third, tariffs have been laid on imports of minerals and battery components, especially from China which is a major source for the U.S.

What about 2025? EV sales are up 11% in the first quarter compared with 2024, with 300,000 EVs sold. So, its a picture of slow, steady growth of EV sales in the U.S. where General Motors, Ford, Hyundai, and BMW all saw rising sales, but not Tesla. The slower EV sales in other countries, as well as the U.S., may push back the date of peak oil a few years beyond 2030, but reports from several oil and gas giants are sticking to a date close to 2030.

Low Oil Prices Mean Rigs Are Let Go

Breakeven is the oil price needed for a company to cover its costs of production, capital expenditures, and dividend payouts. When oil price is falling, the first action is to stop drilling new wells, which means releasing 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 score was 506 rigs. The industry had improved it’s capital efficiency which allowed it to make the same oil production with a smaller number of rigs. The U.S. is now producing more oil than ever: 13.5 MMbopd.

$65 /barrel is the magic breakeven price of oil, on average, to drill a well and make a profit, at least in the regions of Texas, New Mexico and Louisiana. If oil price falls below this level, the dividend payout may be affected.

The average cost of developing a new well, which includes drilling and fracking, but not taxes and dividends, is $48 /barrel in the U.S. But this varies with region. In the Delaware portion of the Permian basin the cost is $38 /barrel while at the other bookend the cost is $57 /barrel in the Bakken of North Dakota. The Midland in the Permian is $42 /barrel, while the Eagle Ford in Texas is $50 /barrel.

This means if the price of oil falls below $65 /barrel and keeps falling, one guideline is rigs would be released in this order:

Powder River — Bakken — Niobrara — Eagle Ford — Midland — Delaware.

Existing wells is a different situation. The average operating expense is $41 /barrel. If oil price falls below $41 /barrel, an operator will often shut in production.