Oil prices plunge as OPEC+ boosts output again
Oil prices slumped again Monday, just days after
OPEC+ announced it would accelerate production for the second month in a row, putting further pressure on the Trump
administration’s "Drill, Baby, Drill" plans.
As of 3:30 p.m., both international and domestic benchmarks had fallen to or just below the $60 per barrel line. Brent Crude had fallen by 1.76% to trade at $60.21 per barrel. Earlier in the day, Brent dipped as low as $59 per barrel. Similarly, West Texas Intermediate had dropped by 2.06% and was selling at $57.09 per barrel.
Prices have been on a downward trend since early April, when they fell to as low as $55 a barrel on the heels of President
Donald Trump’s so-called reciprocal tariffs on most countries. After the president announced a 90-day pause on the tariffs, oil prices and the stock market began to bounce back, but have yet to fully recover.
The most recent downward slide was primarily caused by OPEC+’s decision to boost its oil output again in June by roughly three times more than expected.
The oil-producing bloc announced Saturday that member countries, including Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman, would be increasing production by 411,000 barrels a day starting in June.
This is dramatically higher than the roughly 137,000 that had been anticipated but matches the output increase
announced for May. OPEC+ has said it will continue to monitor market conditions and may pause or reverse any of its production increases at any time.
Tensions have been growing among OPEC+ members for weeks, as Saudi Arabian officials indicated late last month that the kingdom would not prop up the market by cutting supply.
Saudi Arabia, often viewed as a leader within the group, has been looking to boost ties to Washington since Trump took office. As the president has repeatedly called for more oil to be pumped into the market, to bring down costs for consumers, it comes as no surprise that the kingdom is seeking to keep production levels high.
Analysts, however, have been warning that accelerated production levels from OPEC+ may have an unintended effect on demand and production growth within the United States.
This is partly because domestic developers are now facing additional supply chain costs brought on by Trump’s tariffs on steel and other products.
Karr Ingham, a petroleum economist and the president of the Texas Alliance of Energy Producers, told the Washington Examiner that some members are already reporting higher prices. At least one smaller oil and gas operator has seen costs for steel piping from the same supplier jump over 100% after Trump's tariff announcements.
"That's just directly increasing the cost of doing business for operators in Texas, and especially for everybody that's not the huge companies, the majority integrated oil and gas companies, and some of the larger publicly traded independents who have contracted for a lot of pipe at a certain price," Ingham said.
He also noted that while Brent and WTI prices remain right around the $60 a barrel line, the daily posted price for crude that producers are offering is even lower. As of Friday, Ingham said, WTI was priced at $54.27 and was on track to sell at an even lower price Monday.
"In real terms, and in practical terms, we're kind of inching ever closer to that $50 crude oil mark ... and that certainly matters to a lot of independent and oil and gas producers," he said.
With development costs going up and oil prices going down, industry experts have said it could become increasingly difficult for drillers to fulfill the president’s agenda and profitably pursue new projects.
Over the weekend, Kaes Van’t Hof, president of Diamondback Energy, the largest independent oil producer in the Permian Basin,
posted on social media that “Drill, Baby, Drill” was “always” meaningless for the industry.
Even without the tariffs, the Federal Reserve Bank of Dallas estimated earlier this year that prices would need to sit at an average of $64 per barrel to support new drilling.
If oil prices remain below $60 per barrel for an extended period and the steel tariffs remain in place, developers may be forced to take on cost-cutting measures such as layoffs, drilling executives have warned.
Unless OPEC+ changes its mind on the output increase or the administration revisits the tariff conversation, Ingham indicated, announcements of layoffs or production cuts could be coming soon.
"I don't like to prejudge whether that's going to happen, and I don't like to be alarmist about it, but realistically, it shouldn't surprise anybody at this point if we start to see those two things occurring," he said.