Would oil $ 50 be really good for the United States?

The administration of Donald Trumps indicated the desire to see crude prices fall at $ 50 per barrel or decrease, but the advantage for American consumers is likely to link the same petroleum industry as the president wants to develop.

On the campaign trail, Trump spoke several times very low petrol prices of $ 1.87 per gallon equivalent to around $ 20 a barrel for crude as a perfect place, an absolutely magnificent number.

The price of the oil price that the American president was looking for hardened last week after Peter Navarro, one of his commercial advisers, suggested that if oil fell at $ 50 a barrel, this would help to tame inflation.

The Brent Brut, the world reference, dropped a barrel at $ 68 last week, the lowest in three years, because the OPEC + producer group confirmed its intention to gradually increase production.

Analysts warn that much greater drop could make almost impossible for administration to respond to another of its targets by expanding American energy production of 3 million barrels of oil or equivalent per day by 2028.

Fifty dollars, a barrel will injure the United States more than enjoying it, and this will certainly not allow the United States to produce more oil, which Trump also wants to see, said Claudio Galimberti, chief economist of Rystad Energy. The two objectives are incompatible.

Commercial advisor Peter Navarro, in the oval office of President Donald Trump, suggested that if oil fell at $ 50 per barrel, it would help to tame the inflation Andrew Caballe-Reynolds / AFP / Getty Images

The last time Brent was less than $ 50 a barrel was in November 2020 during the coronavirus pandemic. The prices of American gasoline have not been as low as $ 1.87 Gallon since May 2020.

US Energy Secretary Chris Wright told journalists this week that the administration had no target price for crude oil. However, he reiterated complaints prior to financial times by loosening the regulations and other obstacles to production, US oil companies could increase production, even at prices as low as $ 50.

The objective is to encourage capital investment, to facilitate the construction of infrastructure, and therefore to reduce the costs of people who make decisions to unravel oil and gas wells and increase supply, he said. More offer will result in a drop in prices and other opportunities.

The implications of the low oil prices for the American economy have changed in the past decade due to the spectacular expansion of shale production. The United States has pumped more than 13 million barrels per day last year against 6mn in 2012, the transforming the largest oil producer in the world and into a net exporter.

While the drop in oil prices was historically a boon for the American economy, today it would make income in the oil sector even if it reduced costs for consumers.

S&P Global Commodity Insights estimates that the average price of the profitability threshold for producers of American shale this year is $ 45 per barrel and that many analysts and oil leaders said that too many American shale producers would be not profitable at $ 50 / B to extend American production.

Paul Portenl, head of raw material research at Standard Charterd, said that the crude $ 50 per ball would seem a bit of a pyrrhic victory.

The shale economy could still operate in certain small parts of the Delaware and Midland basins, but the rest, including Oklahoma, the Rockies, Bakken, southern Texas, would have trouble continuing, he said.

In the county of Dunn in the Northern Dakotas basin, which receives a large part of its budget from a production tax on oil producers, 84% of the population voted for Trump. His counter-intuitive, said Tracy Dolezal, commissioner of the county of Dunns. We will see a slowdown in the activity … which will have an impact on income.

A drilling platform in the formation of Bakken in Northern Dakota Daniel Acker / Bloomberg

Trumps announced that prices on imports of crucial materials, including aluminum and steel, also increased costs for oil producers at the same time as his administration asked them to drill, baby, forest, noted Martijn Rats, global oil strategist at Morgan Stanley. These things decrease the breadth of profitability no lower, he said.

Scott Sheffield, one of the pioneers of the American shale revolution, said that $ 50 in forced oil producers of American shale to reduce production, allowing other countries, in particular OPEC members, to increase market share and increase prices on a later date.

This will put the OPEC and Saudi Arabia in addition to control by 2030, so they are able to considerably increase the market share, he said. I really don't think they've thought about ramifications. It's good for the consumer but it will be very bad for [US] energy.

Trump should continue his calls on OPEC + to increase production faster, but the cartel will not allow prices to lower as low as $ 50 a barrel without intervening.

Fifty dollars per barrel would be a big problem for them, said Galimberti, adding that OPEC +, led by Saudi Arabia and Russia, said it could take a break and reverse production increases at any time.

Saudi Arabia needs an oil price nearly $ 100 per barrel to balance its budget, according to the IMF, while Russia depends on oil exports to finance its war in Ukraine.

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Wright offered the industry for its full support during the largest annual gathering of American oil leaders in Houston this week. We need more energy. Much more energy, he said.

The address received an enthusiastic, but private reception, the leaders are much less convinced, concerned about the development of unpredictable policies and Trump administrations.

During a dinner the day before Wright and the leaders of the management, half of the room applauded and the other half was silent, said a person who was present. People who do not like it are too frightened to express themselves at the moment.

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