Oil Price - April 3

[dan_s]

Trading Economics:
Oil prices dropped over 6% on Thursday, with WTI crude falling to $67 per barrel, after eight OPEC+ countries unexpectedly announced they would increase oil production by 411,000 barrels per day in May, far more than the planned 135,000 bpd.
> OPEC cited strong market fundamentals but said future increases could be paused if needed. < My WAG is that OPEC sees the likelihood of the U.S. enforcing the sanctions against Iran increasing rapidly (plus Israel + U.S. are likely to bomb Iran's nuclear enrichment facilities soon). The U.S. Navy can quickly take a million bpd of Iranian oil off the market.
> Oil was already down over 4% after U.S. President Trump announced new tariffs, sparking fears of a global trade war that could slow economic growth and reduce fuel demand.
> While oil imports were exempt, investors worried the tariffs could still hurt the economy and inflation.
> Also, US crude inventories unexpectedly rose by 6.2 million barrels last week, contrary to forecasts of a 2-million-barrel draw, driven by a surge in Canadian imports.

Note this morning from Keith Kohl below. Read it carefully. My comments are in blue.

Trump is pissed, but he’s about to get even angrier.

However, it’s not yesterday’s Liberation Day tariff announcements that we’re going to discuss today. President Trump’s war for free trade notwithstanding, he’s in a much tougher position when it comes to energy.

Truth is, he’s between a rock and a hard place when it comes to oil.

There’s no doubt in any of our minds that President Trump wants lower oil prices — $50 per barrel if he had his way; and yet, we already talked about why $50 oil is a myth, didn’t we?

You and I both know that if we ever truly saw $50/bbl oil, it would be disastrous for the U.S. oil sector. In that event, we would immediately see new projects cancelled and rigs go idle in every oil patch in the country. Companies would go into survival mode like they did a decade ago when crude prices collapsed.

All hopes of oil production growth would vanish. If that doesn’t sound foreboding enough, keep in mind that nearly every oil forecast and think tank out there is counting on the United States to shoulder much of the expected global supply growth outside of OPEC+.

The problem is that people are far too optimistic, and that creates an interesting opportunity in and of itself.

Right now, everyone is banking on strong oil production in the United States this year, and in particular President Trump.

Why? Well, what this does is allow his administration to stay on the offensive.

Mark my words, dear reader, the most important weapon in President Trump’s arsenal is this: Energy dominance!

You know it. I know it. He knows it, which is why he signed an Executive Order two months ago to establish a National Energy Dominance Council.

That makes sense, doesn’t it? After all, strong production growth gives Trump the freedom to go after Russia through sanctions. Just recently the President threatened Russia with new oil tariffs in order to put pressure on Putin to agree to a cease-fire.

Trump said it himself, too, saying that if he thought a cease-fire deal fell through because of Russia, he’d put secondary tariffs on all oil coming out of Russia.

Of course, strong U.S. oil output also lets Trump get even more aggressive with Maduro’s regime in Venezuela. Secondary tariffs would be levied against anyone buying Venezuelan oil that includes a 25% tariff on all trade with the United States — clearly a policy aimed at China.

For the record, our oil imports from Venezuela have grown to 300,000 barrels per day over the past two years.

Mind you, buying more heavy crude from Maduro hasn’t dented our thirst for Canadian crude imports, which was just shy of 5 million barrels per day this past January. < This is why Trump's team members convinced Donald to drop the tariffs on imports of oil & gas from Canada; the U.S. economy depends on a steady supply of heavy oil from Canada, which is just one reason why I think Hemisphere Energy (HME.V and HMENF) is a "Screaming Buy" today.

So where’s the problem, you ask?

Ask yourself what happens to this goal of energy dominance if U.S. oil production doesn’t grow like everyone is expecting it to?

Last week, I mentioned that U.S. oil production hit an all-time high of 13.5 million barrels per day in December, 2024 — that’s good news, right?

Unfortunately, the good news didn’t last. The most recent Monthly Petroleum Report out of the EIA showed that field production in the United States was just 13.1 million barrels per day in January.

If growth remains stagnant — which it will in a low oil price environment — it weakens President Trump’s leverage.

That’s enough to make President Trump angry once he realizes it.

But there’s another issue at play in this story. While U.S. oil production doesn’t meet everyone else’s overly optimistic growth expectations, our oil demand is surging higher. U.S. oil demand jumped nearly 6% year-over-year to nearly 20.7 million barrels per day. < The U.S. economy runs on oil and even a million more windmills won't change that.

For now, push aside all the rhetoric about production in states like Alaska potentially getting a bump over new ANWR drilling; that won’t come into play for quite a while, if at all.

The focus has always been on production in just one oil region — the Permian Basin. This is where we extract more than four out of every ten barrels of crude oil in the United States.

It’s the lynchpin for our country’s domestic production.

Yet we’ve moved beyond the initial tight oil boom era, and things aren’t as easy as they used to be. Drillers today are running out of Tier 1 inventory; wells are getting gassier, limiting crude oil output.

Today, it’s no longer about how many rigs you can put in the field; it’s no longer about debt-fueled drilling. From here on out, the most important factor for U.S. oil companies comes down to one thing — efficiency and lowering costs.