April 10, 2025 - 2:50pm
Crude oil prices have started to decline again today, after initially rising thanks to news that most of America’s trading partners will receive a 90-day tariff suspension. Donald Trump’s escalated tariff strategy against Beijing, which increased the overall rate on Chinese imports to 125% effective immediately, has further contributed to the negative market outlook. There are now strong indicators that long-term crude oil prices will continue to trend downwards.
Unsurprisingly, the US energy sector isn’t happy. It thought that Trump was “its man” in the White House; but as it turns out, the President doesn’t care as much about the bottom line of the oil and gas giants as he does about actual prices for consumers. He can only afford to do so, however, because the US position in the global energy markets has fundamentally shifted over the last decade. It was once thought that the US would become the world’s largest energy importer, but the shale revolution turned America into one of the major exporters, altering the power distribution in global energy markets.
The price-setting power of Opec+ has been eroding steadily. If the world’s largest producer is outside of your cartel, then your cartel exists in name only. Some 30 years ago, the words of a president would have barely shifted oil prices, but this was before the US shot to the top of the world’s hydrocarbon producers. In 2014, Opec under Saudi leadership tried to crash oil prices with increased production, hoping to drive US shale companies out of business. But the latter prevailed and are now expanding, forcing Opec+ members to negotiate with the US.
Consider the meetings of Russian and US officials in Saudi Arabia earlier this year. Officially, these talks were about the war in Ukraine but it’s unlikely that was all that was discussed. The United States, Russia, and Saudi Arabia are the three largest producers of crude oil in the world, so talks about energy were most certainly on the table. That there is something brewing between Moscow, Washington, and Riyadh became clear after the unveiling of the tariffs. Every country was hit with at least a 10% baseline tariff, including uninhabited islands 4,000 kilometres off the Australian coast.
Yet one country was missing from the list: Russia. It is hard to believe that this is a coincidence, since on the very day the tariffs were announced, Opec+ unexpectedly said it would increase its output by 411,000 barrels per day in May. Oil dropped further on this announcement. Today, the Financial Times has reported that the American shale industry could be in trouble if prices stay so low.
What this appears to signify is that Opec+ is escalating its conflict with the US shale industry. Contrary to what many believe, there are multiple ways in which hydrocarbons can be substituted for each other, and if one of them — such as oil — gets too expensive, arbitrage will occur. In Asia, for example, more and more truck companies are switching their engines from diesel to liquified natural gas (LNG). If gas on an energy content basis is cheaper than diesel or gasoline, it is only a matter of time before large-scale switching occurs.
Natural gas in North America is trading at prices corresponding to roughly $23 and $46 per barrel. In contrast, crude oil is trading at approximately $70 per barrel. One might expect to see a major switch to American shale, but this price may be too low for large-scale production to continue.
The world, it seems, is not entering a shortage of energy but a potential glut. This all points to low oil prices becoming a permanent feature, with shale even cheaper. As the world’s single largest producer of hydrocarbons, America has a very strong hand despite the shale worries, and the current administration is using it as part of its broader strategy.
Tariffs are inflationary, but falling energy prices are deflationary, so there is a potential for balancing one with the other. Opec is hoping that it can absorb smaller returns on its exports in order to halt American shale production. Yet a crucial pillar of the Trump administration’s plans to reshore manufacturing is the promise of cheap energy. As a result, the White House may be willing to help the shale industry through a tough time.
Ralph Schoellhammer is assistant professor of International Relations at Webster University, Vienna.
Raphfel
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SubscribeYa. Not even close to reality. The author fails to consider that fossil fuel consumption has grown tremendously over the last two decades and will continue to grow. OPEC has been manipulating the markets since the 70s and will continue trying to do so. Eventually production and consumption will balance out as it always does. There will come a day when we transition away from fossil fuels, but that will be determined by markets, not OPEC, not Trump and certainly not net zero fanatics.
Concerning your last, and very true sentence, many decades ago Sheik Yamani observed, as to oil, that “the Stone Age didn’t end because the world ran out of stones”.
We haven’t found better though.
Yet…and probably won’t for many years.
Even when found it is unlikely to be recognised quickly as “the solution”.
Technological advances proceed slowly…then exponentially. We are now communicating on one…Star Trek fantasy at one point.
“The future is already here, it’s just unevenly spread”…William Gibson
Cold fusion is likely a long ways away.
But hot fission is readily available, or would be had the Soviet-funded anti-nuclear movement not so wormed its way into the minds of too many in the West, both policy-makers and ordinary citizens.
The economics don’t work until we have magic shields technology.
It has been a while since I herd Sheik Yamani’s name mentioned. I was always a big fan of his cousin, Sheik Yerbouti.
Wasn’t he a native of Studio 54…lol?
Another cousin was Sheik Rattlenroll.
I use Sheik ‘n Vac myself…
Opec produces 40% of world’s oil, 60% of oil traded is Opec, and they own 80% of reserves, so their influence on the markets will remain and probably increase. Production costs are very low, due to easy access to their oil reserves, especially in the middle east. There are major projects under development in Iraq and other countries, Iran also has huge potential. US shale will eventually decline as the wells are depleted and it’s more costly to develop. Opec will be able to manipulate prices in the future for their own interests, ExxonMobil and Chevron BP and others don’t have the power they used to, their stock prices are not doing well either. In the future, it won’t be a good business to be in, will be dominated mostly by national oil companies.
Not familiar with the actuality huh?
Albertan and Texan hydrocarbon technology will determine the economic reserves.
No tariffs on Russia because they are sanctioned 100%. Nothing left to sell to the US after that. So it ain’t a coincidence. Just not in the way the author wants to imply.
Trump would appear to want to reduce debt and bring about a return of manufacturing. Cheap energy and education based upon a technical meritocracy will do this. Expensive energy and DEI practices with a bias towards humanities will further reduce manufcturing and increase imports of manufactured goods.
The lemmings will continue to jump off the cliff.