22/03/2025
Share:
22/03/2025
Share:
WITH the US president pledging to bring oil prices down, and the current price level remaining unstable, the possibility of prices dropping below $70 seems feasible. Many oil companies are increasing exploration and production efforts, pushing for more crude oil extraction nonstop. Regardless of the price level, the message is clear: “Dig, baby, dig,” a famous quote from US President Trump. However, it is also possible that oil prices may stabilize on their own, or OPEC+ may intervene and reduce its production quota to maintain stable prices.
Although shale oil prices have decreased from their original equilibrium of $70 in 2010 to the $45-$50 range today, it remains clear that such low prices are not sustainable long term for low-cost producing oil wells. US oil companies are currently pushing for higher production volumes, regardless of future oil prices. They may hope that prices will eventually stabilize or that they can find ways to reduce costs, even if oil drops to $50 per barrel. Alternatively, companies might pursue further cost-cutting measures, potentially including layoffs, to lower the cost of producing a barrel of oil.
Kamel Al-Harami
With the US administration advocating for lower oil prices and making more federal land available for oil exploration, US production has reached 13.6 million barrels per day. US oil companies are pushing forward to increase production to 15 to 20 million barrels per day within the next five years. In their pursuit of lowering oil prices, companies must also work harder to reduce their costs to make $50 per barrel viable and affordable for consumers. In the meantime, they will continue to push for further cost cuts.
However, the question remains: at what point have they exhausted all possibilities for reducing production costs? Some, if not all, are determined to continue extracting oil, as long as it remains sustainable, and they will persist in their efforts to secure rewards and an acceptable level of return on investment. Competing with OPEC+’s crude oil production costs is difficult, but the reality is that most OPEC+ countries desperately need oil prices above $90 to balance their budgets.
This makes the economics of US oil production more favorable, as US companies must consider the $90+ price point required by OPEC+ when determining their investment costs. Therefore, US shale oil producers and their shareholders need not worry excessively about production costs, as long as OPEC+ requires oil prices in the $90 range. So the “dig, baby, dig” approach remains a sustainable, realistic, and viable cost strategy.
By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]
