What would happen if WTI actually did go to $50/bbl

[dan_s]

Notes below are from Keith Kohl on 4-28-2025

There is a disconnect between reality and fantasy in the oil markets today.

Do you see it? If so, your portfolio will thank you for it later. When WTI crude prices plunged below $60 per barrel earlier this month, I tried warning you that oil stocks were a screaming buy.

Look, no matter how bearish you are on oil prices, the cold, bitter truth is that $50 oil would be disastrous for future energy security; nobody is disputing this fact. The trouble with cheap oil is that prices this low will spurn all hope of production growth here in the United States.

In fact, it already HAS.

Given the current low-commodity price environment, I told you that it was only a matter of time before we’d see it impact drilling activity. For now, just push aside the fact that the number of oil rigs actively drilling in the lower-48 states has been falling for seven straight weeks… which is bad enough.

Some of the biggest oil companies are already starting to cut back on spending, too. Chevron announced a few weeks ago that it was slashing its 2025 capital budget by $2 billion, which includes a sizable reduction in the Permian Basin.

They’re not alone, either. Both Exxon and ConocoPhillips — two of the largest players in the Permian — are also reducing capital spending in the region this year.

The dominoes are starting to fall thanks to cheap oil, but there’s still time to sit up and take notice before the rest of the market catches on.

We’ll get to that in just a second…

If you’ve ever wondered just how hard reality can hit us sometimes, look no further than our current Energy Security’s miraculous 180° flip over the current state of our oil markets.

If you recall, it was only a couple of weeks ago that Energy Secretary Chris Wright stood up and confidently said that the U.S. shale industry wouldn’t just survive $50 oil — it would thrive!

Like you, I still can’t believe he managed to keep a straight face when saying it.

Now, it seems as if reality has finally caught up with him after he told everyone that $50 oil was not sustainable for producers.

This sudden about-face makes it clear that he knows exactly what we knew all along — oil prices are inevitably heading higher from here. < This is why, as FEAR of the Tariff War fades, investors are going to roll money back into upstream oil & gas companies that have a lot of "Running Room" in North America's best oil & gas basins. Some of the most profitable upstream independents are in our Sweet 16 Growth Portfolio and their shares are "On Sale".

He’s not the only one that’s getting things wrong.

The Only Way To Make Money In Oil Today

Perhaps more interesting than the u-turn that Secretary Wright made this week regarding oil prices is the continual resistance by the IEA to accept that the global supply/demand fundamentals for oil are going to put upward pressure on prices.

Despite admitting that global oil demand hit its highest rate in two years — up 1.2 million barrels per day compared to a year ago — the IEA is sticking to the notion that it’ll slow through 2026. This is not to mention the optimistic supply growth forecast it continues to hold on to.

Well, you know what they say, right? Forecasts were made to be revised.

Unless the trade war currently taking place takes a turn for the worse, which is still a possibility, cheap oil prices will limit any potential supply growth. More importantly, if the rumors over OPEC+ accelerating supply growth next month turns out to be more gossip than fact, things will get even tighter.

This leads us to the only real way to make money in the U.S. oil patch. You see, some of the biggest players in oil aren’t just slowing drilling activity, they’re adjusting their strategy to take advantage of new drilling and completion techniques to lower costs and boost efficiency. < Matador Resources (MTDR) is reporting strong results from "U-Turn horizontal wells".

That “drill, baby, drill” mentality is what led to the debt-fueled drilling frenzy a decade ago.

I told you before that the game has changed for them, and Chevron is a perfect example of what I mean. The company is planning on utilizing a technique called ‘triple-frac’ to cut both the time and money spent on each well in the Permian Basin.

In fact, Chevron plans on using this ‘triple-frac’ technique on half of its wells in the region — more than double what it was doing last year.

This is how you maximize your profits in the Permian.

[Petroleum economist]

I agree with Keith Kohl that a continuous WTI=$ 50/bbl oil price scenario would be a disaster for the US and Canadian oil industry.

I ran a $ 50/bbl oil price scenario through my 85 companies ranking model. The model indicates that the impact will be enormous:

• 29 out of 85 companies (=34% of the total) would develop negative free cash flows and would be forced to cut a substantial part of their capital investments and all shareholder returns.
• Another 20 companies (24% of total) would have only marginal positive free cash flows. They most likely will reduce part of their shareholder returns and/or capital investments.
• Only 31 companies (42%) of the total) can fully maintain their capital investment. These companies can maintain their investment programmes but many most likely will be forced to reduce their shareholder returns to 30-50% of current levels.

The 31 companies which would be more or less OK consist of:
• Service providers. Examples are Schlumberger, NOV, Halliburton and Baker Hughes. For such companies' revenues are not directly linked to the oil price. However, it is likely they will be indirectly affected through reduced activities of their clients.
• Integrated and downstream companies: Examples are Exxon, Chevron, Phillips 66, and Cheniere Energy. Their downstream activities will protect these companies from the oil price impact.
• US gas companies. Examples are CNX resources, Gulfport, Range Resources, Antero Resources, Coterra, and Expand Energy. Their gas revenues will protect them from the impact of the fall in oil prices.
• Canadian gas companies. Examples are Peyto Exploration, Tourmaline Oil, Kelt Exploration, Nuvista and ARC resources.
• Oil companies with a solid balance sheet, low royalties, low taxes and low operating costs. Examples are Diamondback Energy, Ovintiv, Kolibri Global, Blackstone Minerals, Viper Energy, Magnolia, Sabine Royalty Trust, and MEG Energy.

My guess is that under a $ 50/bbl oil price scenario the USA production will drop with 10-12% per year. This means that within two years the energy dependence of the US will be gone as imports will exceed exports.

[aja57]

https://www.zerohedge.com/the-market-ear/no-trump-put-oil-0

Guessing Trump will fill up the SPR vigorously at $50 a barrel. Not the put the oil market will be looking for. Nor us for that matter.