How Oil Companies Think About Recessions

Oil guy Matt Randolph is back with a very worthwhile explainer on how oil companies are responding to the downturn caused by their favored President kneecapping their business model.

Rystad Energy via OilPrice.com:

• US oil producers are struggling to defend margins at $60 WTI due to additional corporate costs that raise the all-in breakeven price.
• Trade policies and market volatility are threatening US oil production growth, particularly in the Permian Basin, as companies may need to cut back activity to maintain investor payouts.
• Increased hurdle rates and debt service costs have pushed the estimated all-in corporate cash flow WTI breakeven to approximately $62.50 for new activity in 2025.

West Texas Intermediate (WTI) crude prices dipped into the low $60 per barrel range following President Donald Trump’s sweeping tariffs announced on 2 April. While the subsequent 9 April move to pause the new levies at 10% for most countries for the next 90 days helped WTI prices recoup some losses, the market remains extremely volatile. This price level is well above the fundamental upstream breakevens for most US shale players, especially those in the Permian. However, Rystad Energy finds that additional corporate items, including higher hurdle rates, dividend payments and debt service costs, means that the “all-in” corporate cash flow breakeven for many US oil players is closer to $62.50 WTI. If the recent price downturn is sustained, these price levels could threaten US oil production growth this year, as operators may be forced to cut back activity to maintain investor payouts.

OilPrice.com:

Crude oil prices slumped to their lowest level since 2021 after the U.S. announced a fresh 50% tariff for Chinese imports following Beijing’s refusal to withdraw its retaliatory 34% tariffs announced in response to Washington’s imposition of a 34% tariff rate on top of already existing levies.

At the time of writing, Brent crude was trading at $60.36 per barrel, with West Texas Intermediate at $57.04 per barrel, both down by close to 4% from Tuesday’s close. Since the start of the year, the benchmarks have shed lover $10 per barrel and most analysts expect the rout to deepen as fears run high that tariffs would sap oil demand.