Trump wants oil prices to drop below $50, is the market ready?

Trump's tariff tsunami shocks global markets, with crude oil prices plummeting 14% in just two days. Investors are concerned that a full-blown trade war will severely impact economic growth and oil demand. JP Morgan warns that the supply-demand imbalance and the Trump administration's $50 oil price target could become a reality in the next two years, posing a survival threat to U.S. shale oil companies.

Shale Oil Industry Hit Hard: Billions in Market Value Evaporated in Two Days

According to CCTV News, on April 2 local time, the U.S. announced higher "reciprocal tariffs" on the country with the largest trade deficit with the U.S., which will officially take effect on April 9. The news sent shockwaves through global financial markets.

As a result, international oil prices plummeted nearly 14% over two trading days, briefly reaching $61.99 per barrel, the lowest level since April 2021. This price is already below the level required for U.S. shale oil producers to maintain healthy investments.

Ironically, the current impact on the U.S. oil industry can be described as "self-inflicted harm."

Oil and gas donors invested tens of millions of dollars during Trump's campaign, hoping that his second term would usher in a new golden age of oil prosperity. However, the reality is that they are being forced into a trade conflict that investors fear will severely impact the global economy and suppress oil demand.

Trump's Energy Policy Contradiction: Low Oil Prices or Energy Dominance?

The Trump administration has made it clear that one of its primary goals is to bring crude oil prices down to $50 per barrel or lower. While this could lead to a "period of industry turmoil" similar to the price war between OPEC and shale oil in 2014, the government believes it will ultimately lower oil production costs. During the campaign, Trump rarely missed an opportunity to promote his plan to lower oil prices, even promising to reduce oil prices at a fundraising event in Midland, a major oil town in Central Texas, despite the fact that low oil prices mean trouble for the local economy.

However, this contradictory policy is now hurting the U.S. energy industry. A survey released last month by the Dallas Federal Reserve criticized the Trump administration's suggestion that oil prices should reach $50 per barrel.

An anonymous executive stated that if oil prices remain at this level, U.S. oil production "will immediately begin to decline, and the extent could be quite significant." The executive warned:

It is impossible to achieve U.S. energy dominance and a $50 per barrel oil price simultaneously.

Wes Perry, chairman of West Texas shale oil company PBEX, stated that he discussed the company's drilling budget with his team on Friday, considering various price scenarios. The company is exploring multiple options to cope with low oil prices, including possibly abandoning one of the two drilling rigs it had planned to operate:

No one has talked about shutting down production yet, but it is a possibility.

Trump's Tariff Policy and the Double Blow to the Oil Industry

According to JP Morgan's latest oil market weekly report, if Trump's tariffs continue, they will severely impact economic growth in the U.S. and globally, pushing both the U.S. and global economies into recession this year, with significant inflationary effects expected from the tariffs.

Shale oil producers are now caught in multiple dilemmas: on one hand, OPEC+ decided last week to increase production by over 400,000 barrels per day next month, and on the other hand, the tariffs are leading to potential demand slowdown. At the same time, Trump's steel tariffs have increased their wellhead costs.

JP Morgan's latest report predicts that the market will continue to be oversupplied for the next two years, with the average Brent oil price at $73 per barrel in 2025, dropping to $64 per barrel by the end of the year, and Brent prices falling to $61 per barrel in 2026, with WTI averaging $57 per barrel.

The key is that these predictions assume that Saudi Arabia and Russia will maintain their current production levels in OPEC+. However, low production combined with low prices is unsustainable, and some OPEC members may consider increasing oil production.

JP Morgan warns that given the cyclical volatility patterns in the oil market over the past decade, particularly in 2014 and 2020, the market faces a very high risk of another reset.

Survival Challenges in the Shale Oil Industry

Although the U.S. shale oil industry has cut billions of dollars in debt in recent years, allowing it to better withstand the impact of price declines, if oil prices remain around $60 per barrel for an extended period, U.S. shale oil producers will have to reassess their spending levels for the year and even for 2026.

Andy Lipow, president of Houston-based energy consulting firm Lipow Oil Associates, stated:

If we experience a prolonged period of low oil prices, you will see cuts. They may decide to cut spending or delay additional expenditures until they observe how the tariff impacts evolve in the coming months.

Additionally, falling oil prices will further squeeze the job market for oil engineers, geologists, and drilling platform workers. Recruiters say that after a series of layoffs due to mergers and other cost-cutting measures, it has become difficult for oil industry workers to find jobs.

JP Morgan currently expects a massive supply surplus of 1.3 million barrels per day in the global crude oil market by 2025, with the average Brent crude oil price at $73 per barrel, but solidly dropping below $70 by the end of the year to $64 per barrel.

By 2026, the large supply surplus is expected to push Brent crude oil prices below $60 per barrel for the entire year, with an average Brent forecast of $61 per barrel and WTI at $57 per barrel