The Trouble With Cheap Oil

If your oil senses are tingling with prices in the $60/bbl range, don’t ignore them. 

You aren’t alone getting those tiny alarms going off in the back of your mind; some of the biggest firms on Wall Street are starting to whisper. They know as well as we do the trouble that comes with cheap oil.

And yes, oil IS cheap below $70 per barrel. Two days ago, Goldman Sachs warned that we’ll lose 300,000 barrels per day from non-OPEC+ supply over 12 months for each $10/bbl price decline with Brent under $70 per barrel. 

Today, Brent is barely holding onto that threshold and trading for $73.80/bbl. 

Although I told you recently that $50 oil was a myth, the supply situation gets even worse if prices were to approach that level. 

Do you want to know just how bad things can get if that nightmare scenario occurs? Keep in mind that the Trump administration has repeatedly touted that the ‘Drill, Baby, Drill’ mantra would bring prices down to $50 per barrel, no matter how much we know it cannot happen without disastrous consequences. 

Those Goldman analysts expect non-OPEC+ supply growth to fall more than 42% with Brent prices at $60 per barrel. 

Here in the U.S., Goldman expects shale output to decline by 200,000 barrels per day for every $10/bbl price drop below $70 per barrel for Brent crude. Remember, everyone is expecting the U.S. to be one of the leading sources for global supply growth in 2024. 

Considering that our tight oil production accounts for about 73% of our total domestic production, say goodbye to any growth whatsoever on any further weakness in oil prices. 

And that, dear reader, is the LEAST of our troubles with cheap oil… but hold onto that thought for a moment.

Forget the Goldman doom-and-gloom for a moment, and let’s focus on where we are right now. 

With WTI crude trying its best to break $70 per barrel yesterday, we’ve been entrenched in the $60-$70/bbl range for more than a month at this point. 

Mark my words, something is going to give. 

The reason why is sitting in plain sight in the Dallas Fed’s latest energy survey. In a survey of 81 E&P executives, we got a glimpse into just how crucial crude prices are at this level. 

Go ahead and take a look at the price that WTI needs to be for these companies to profitably drill a new well:

In fact, the price these companies need just to cover their operating costs is approximately $41 per barrel. Fortunately, I don’t believe we’ll ever see that kind of price collapse going forward; if we do, there’ll be a lot more to worry about… trust me. 

The Real Trouble With Cheap Oil

Take your mind off of crude oil for a moment and think of the other serious crisis that’ll take place if we do see production growth stall over the next few years. 

That problem concerns natural gas. 

Remember back in 2023 when everyone was surprised after U.S. oil production grew by a million barrels per day? I’m humble enough to say that I didn’t see that kind of growth coming. 

However, along with that significant growth came a flood of natural gas. That year, associated natural gas — the gas produced alongside oil — accounted for nearly 27% of our country’s natural gas production. 

As long as our oil production is growing, we can safely assume there’ll be plenty of gas to fill those LNG tankers anchored in the Gulf Coast, and more than enough natural gas to feed the growing demand for electrical power — which I’ll note grew by 2% last year after nearly 20 years of flat growth. 

What do you think will happen if U.S. oil production growth slows down or, god forbid, stall entirely due to cheap oil?

The thing is, we already know the answer to that. 

In 2023, the year we saw explosive growth in crude output, U.S. natural gas production grew by more than 4.2%. Last year, when our oil production was stagnant, our natural gas production fell by less than 1%. 

Meanwhile, we saw our natural gas consumption continue its steady march higher. 

Are you still curious why natural gas prices have been explosive as of late? Of course you’re not, and neither am I. 

Barring some unforeseen price spike for crude, the world isn’t expecting higher crude prices this year, nor in 2026 — that alone puts an incredible premium on the most efficient drillers in premier oil regions like the Permian Basin.

And make no mistake, these are the oil gems that Big Oil will be salivating over when it comes time to open their war chests again and make their next acquisitions… Here's how you beat them to the punch.