MW How Trump's Middle East visit to push OPEC+ for more oil could end up hurting U.S. producers

By Myra P. Saefong

Margins for U.S. shale producers are 'razor thin' with prices around $60 a barrel

Major global oil producers in the group known as OPEC+ did exactly what U.S. President Donald Trump has been asking for - and American oil producers may be the ones to soon pay the price.

The group, led by Saudi Arabia, announced on May 3 that it would accelerate its plans to boost output in June for a second month in a row, prompting a drop in oil prices to their lowest level in more than four years.

The group's decision has triggered a supply surge, despite crude oil sliding to the low-$60s per barrel - and U.S. shale producers are "feeling the squeeze," economists at Allianz Research, led by Ludovic Subran, wrote in a note Friday.

OPEC+ said it would increase production in June by 411,000 barrels per day. That would follow an increase of the same amount for the month of May. The monthly increases are three times larger than the group had originally planned under its phaseout of 2024 voluntary production cuts by eight of its members that had totaled 2.2 million barrels a day.

U.S. and global benchmark oil prices fell sharply in the wake of the group's announcement. On May 5, front-month futures prices for West Texas Intermediate crude (CL.1) (CLM25) settled at $57.13 a barrel on the New York Mercantile Exchange while Brent crude (BRN00) (BRNN25) settled at $60.23 on ICE Futures Europe - with both ending at their lowest levels since Feb. 5, 2021.

Against that backdrop of weakness in oil prices, Jay Young, founder and chief executive of oil-and-gas operator King Operating Corp., told MarketWatch that "oil producers like us are dealing with a tricky and unpredictable market."

But there are some positive signs with oil prices going up a bit lately, partly because of growing confidence in global trade, he noted - pointing out that the U.S. recently announced its first trade deal with the U.K. since Brexit and how more deals could follow.

'Oil producers like us are dealing with a tricky and unpredictable market.'Jay Young, CEO of King Operating Corp.

"These kinds of developments usually boost energy demand, which helps keep prices up," said Young.

So even though oil prices "may be a bit shaky right now, we're optimistic," he added. "Global demand, especially for U.S. natural gas, is growing - and for King [Operating Corp.], that's a solid path forward."

'Triple threat'

However, Michael Lynch, president at Strategic Energy & Economic Research, told MarketWatch that the oil industry is being very cautious about investment given the "significant probability" of lower oil prices.

He blamed that likelihood on what he referred to as the "Trump triple threat: economic weakness from trade wars, potential for weakened sanctions against Iran and/or Russia, and pressure on the Saudis for more oil."

At around a $60-a-barrel price for oil, the industry will "retrench slightly and production will flatline," Lynch said. Below that, "you start talking about layoffs and falling output."

So "between the double whammy of tariffs on their equipment and weak prices, there are probably a few in Texas regretting the election outlook" he said. Several major shale basins are located in Texas, including the Permian and Eagle Ford shale regions.

Trump had pledged to boost domestic production of fossil fuels and lower energy prices, even declaring a "national energy emergency" as one of his first actions as president, in support of that.

Low oil prices, however, leave U.S. shale producers, specifically those in the Permian basin, which spans from West Texas to southeastern New Mexico, "dangerously close to their breakeven" price, forcing drilling rig cuts and capital expenditure pullbacks, said economists at Allianz.

U.S. output this year is now expected to be 100,000 barrels per day lower than previous forecasts, they said. That's despite Trump's famous "drill, baby, drill" agenda promoting domestic production.

In its monthly Short-term Energy Outlook report released on May 6, the Energy Information Administration reduced its forecasts for U.S. oil production by 0.7% to 13.42 million barrels per day in 2025.

On a weekly basis, domestic oil putout is still north of 13 million bpd, and that number could fall below 13 million - just "not meaningfully" - maybe to about 12.5 million bpd at current price levels, said Denton Cinquegrana, chief oil analyst at the Oil Price Information Service, a unit of Dow Jones, the publisher of MarketWatch.

Trump has previously asked OPEC and its allies to pump more oil, but "can you imagine how angry" U.S. producers would be if he asked the same from them? said Cinquegrana, suggesting it would not be in their best interest raise output when prices are so low. The market should start to see oil drilling rig counts go down, along with capital expenditures, he said.

Data reported by Baker Hughes $(BKR)$ on Friday revealed that the number of active U.S. rigs drilling for oil fell for a second week in a row, down 5 to 474 this week.

OPEC+'s output surge and lower oil prices in the U.S puts pressure on shale producers, which account for over two-thirds of domestic oil production, the Allianz economists said.

They pegged the breakeven price in the Permian Basin, which they called the "heart of the shale boom," at between $61 and $65 a barrel.

On Friday, WTI oil settled at $61.02 a barrel. Given that, "margins are razor thin, forcing a reconsideration of growth plans and financial prospects," the economists at Allianz said.

Supply 'surge'

So as U.S. producers struggle to profit from prices near their lowest since 2021, Saudi Arabia has been pushing to accelerate the unwinding of OPEC+ production curbs.

By mid-year, OPEC+ will have restored roughly 1 million bpd of supply, unwinding about 40% of the output cuts implemented since 2022 - and the remaining cuts are likely to be fully reversed by October, the Allianz economists said.

"This sets the stage for a surge in oil supply at a time when global demand growth is faltering, non-OPEC output is also increasing and crude prices are below the level needed to balance Saudi Arabia's budget," they said, estimating that price to be around $90 a barrel.

Saudi Arabia is "effectively abandoning" its unofficial $100 a barrel target and signaling a sharp pivot towards tolerating a prolonged period of low prices in an aggressive bid to reclaim market share and 'discipline' other OPEC+ members ... that have been flouting production quotas," the economists at Allianz said. The Saudis are also sending a "positive signal towards the White House," which asked for more output ahead of Trump's visit to Riyadh.

Trump has said he'll be traveling the Middle East next week, and that he'd be visiting Saudi Arabia and other places, including United Arab Emirates and Qatar.

With few exceptions, U.S. presidents have always called for more oil production and lower prices - and "they have typically been ignored," said Strategic Energy & Economic Research's Lynch. "This time could be different."

-Myra P. Saefong

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May 09, 2025 14:58 ET (18:58 GMT)

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