OPEC, Oh Sh*t!

Oh my goodness, where to begin? Russia and Saudi Arabia just did the unthinkable by announcing that they’re increasing output by 411,000 barrels per day starting in June. With demand forecasts going down every day as the world braces for a Trump induced global recession, it’s the exact opposite move from what everyone expected. So what’s going on here and what does it mean for the economy, the future of energy, Trump’s tariff gambit, inflation and the cost of my hair products? Let’s find out!

Why Oil Markets Are Having Their Moment (Again)

By now you know my fascination with oil started in 2008 during the freak oil spike when crude hit $147/barrel, something I’ve written about extensively. Having devoured several books on the subject, I tuned my ear to the language of the commodities markets. But all the reading in the world can only get you so far.

So I’ve been diving back into it lately because a few commodities markets are having their moment. And now that Crypto is being traded like one, it’s even more timely than ever. The first thing to know is that commodity traders are aliens in the financial world. They have their own specialities and language and they keep to themselves. The less you know about them, the happier they are. But oil finds a way of working into the mainstream and once again it’s having a moment. It’s a different kind of commodity because it powers the world.

There is a tug-of-war happening between OPEC+ members, and it just bled out onto the global market. The market is already oversupplied but that didn’t stop Russia and Saudi Arabia from announcing a 400,000+ barrel per day increase starting in June. Prior to the announcement, crude oil was trading consistently between $60 and $70 per barrel, which is basically breakeven for most producers. When a commodity or a stock trades consistently within a particular range, it’s referred to as “rangebound.” The bottom of the range is called ‘support’ and the top is referred to as ‘resistance’. If you hear these terms thrown around on the financial channels, that’s what they mean.

So oil has been rangebound with a support of around $60 and resistance around $70 though it has had moments where it exceeds the resistance range. But when the announcement came from the Saudis and Russia to extend production in the summer, crude tanked below $60 on the news, which means that no one will be profiting from oil. Many analysts are now projecting that oil will now be rangebound between $50 and $60 through 2026. If that’s the case, this carries interesting consequences beyond the markets.

So here’s what we’re going to briefly unpack to give you a better understanding of the dynamics at play. Oil is like no other commodity on the planet. There are multiple distillates for as many uses. It’s a financial trading instrument. It props up entire economies. It can drive inflation or deflation. We fight wars over it. And it powers the world while simultaneously killing it.

Trump’s Tariff Gambit Meets Reality

Let’s start here at home to put oil and energy into context with Trump’s economic plan. That is to say, tariffs. [Trump Voice] Big beautiful reciprocal tariffs. We love tariffs.

The “idea” behind them is to reduce foreign trade deficits by making U.S. goods more attractive and less expensive. Last year the United States exported about $2 trillion worth of goods ranging from aircrafts and cars, iron and steel, cereals and fruits, plastics and boilers; fun stuff like rubbers, drugs and nuts.

But the biggest export of all is fuels. Like Bubba is to shrimp, the U.S. is to fuel. Crude oil. Natural gas. Mineral oil. Ethane. Methane. Gasoline. Bitumen. Grease. Lubricants.

That’s right. Put it all together and fuels and distillates make up about 16% of all U.S. exports. And of those, crude oil makes up about 75%. As Joe Biden once whispered on a hot mic to Obama, it’s a big fucking deal.

So making U.S. oil and energy more competitive and attractive on the global market has long been part of Trump’s plan. An ideal scenario for Trump is for oil to trade at a profitable rate and to boost supply from the U.S. while preventing other oil producing countries from selling as much through sanctions. That’s what really drives our policy toward places like Venezuela and Iran.

The Problem with Pinning Everything on Oil

But here’s the problem with pinning an entire economic strategy around this scenario. Oil is a fungible and tradeable commodity. Producers don’t set the price. The market does. So in the past when he has called upon OPEC+ to bring down the price of oil he is asking them to increase supply, which is what they just did. But now that they’ve done it everyone is angry about it, including Trump. That’s why this is hard for the average person to follow.

The reason he wanted lower oil prices was because it tamps down on inflation. Because his central economic policy is using tariffs to boost demand for U.S. products, by definition he will induce inflation on goods. You can hide some of the impact if energy prices are low, so in a way encouraging OPEC to increase supply is to mask the impact of tariffs.

But what about U.S. oil producers and the whole drill baby drill thing? For all the hoopla about energy independence, U.S. oil and gas companies have been living the high life for many, many years now. We’re talking record profits because there was price stability above their floor and technological breakthroughs meant that they were getting more production from existing wells and didn’t have to spend money digging more. The net result has been several years of record breaking profits and stock buybacks.

Now, Trump got what he asked for because OPEC finally called his bluff. They keep releasing supply and driving down the price of oil. In that way it has given temporary inflation relief to the extent that fuel is a major component of non-core inflation measures. However, because his tariff policy was so reckless, he caused global demand to slump. So not only did he artificially induce a recession, but by encouraging over supply of crude oil he has driven the price down below profitability for his precious energy sector producers. Trump is like the dog with a bone in his mouth who catches his own reflection in a pond. Thinking he’s seeing another dog with a bone he wants, he barks and loses the bone in the water. So now we’re heading into a recession and one of the biggest employer based industries is about to take it on the chin even more.

OPEC+: The Ultimate Collusion Cartel

I’m sure no one is crying in their coffee cup right now for the oil and gas executives but let’s talk through the economic ramifications of this supply shock from OPEC. I should be clear, by the way, that this is actually OPEC+. OPEC has grown up from the days of the 1970s when just a couple of rogue Middle Eastern countries could bring the global economy to its knees.

Today’s OPEC counts Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the UAE and Venezuela. Russia, Kazakhstan and Mexico are all part of what’s referred to as OPEC+. The stated mission of OPEC is to “coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets.”

So let’s call it what it is. The purpose of OPEC+ is collusion.

There was speculation that Russia and Saudi Arabia were pissed at Kazakhstan for ignoring production limits, and that the recent move was just internal beefing; a way to beat them into compliance. But observers like Irina Slav from OilPrice.com and others see it another way. Saudi Arabia is trying like hell to diversify its economy but it’s still very much dependent upon oil for revenue to the kingdom. So much so that to balance its expanding budget, the St. Louis Fed believes that breakeven for the Saudis is around $90/barrel.

A little context on this one. Saudi Arabia is a petro-state so the concept of breakeven is a bit different for them. In pure profit and loss terms they can technically profit on a cost above $10/barrel. That’s how easy it is to pull from the sand as opposed to rocky ground in say Texas, deep water drilling in the Gulf or tar sands in Canada. But because their national budget is fueled by it, $90 is the sweet spot for their sweet, sweet crude. That’s why the push to diversify their economy is so intense. That said, they are sitting on enough cash and oil reserves to play a long game at a lower price for a very, very long time. And their incentives are different from a privately owned oil company for example.

Unlike a nation like the United States with a robust and diversified economy, oil is the name of the economy and everything balances from there. That’s why people were so caught off guard when they cut production even further. So what Slav and others believe is that they’re playing a long game of sorts to push their product into new markets and create a dependence upon their supply. With about 220 billion of proven reserves, it’s believed they have another half century of the oil game. So even though they’re attempting to diversify with things like boxing and golf apparently, oil still reigns supreme.

Trump’s Careful-What-You-Wish-For Moment

So for Trump it’s kind of like ‘careful what you wish for’ buddy. Cheap oil might be great in boom times because it keeps a lid on inflation, but it’s devastating to the oil and gas industry which is about 10% of the U.S. GDP. The big oil companies in the United States need about $65 oil to turn a comfortable profit.

As the world’s largest oil producer, the U.S. is now pumping somewhere around 13.5 million barrels per day at a raw cost of around $48 per barrel. But when you add in corporate overhead, interest on debt and dividends, that figure goes to about $60. Pile on Trump tariffs on materials for maintenance and replacement equipment, and the number goes even higher.

Energy is pretty much the biggest “tariff-ready” export the country has, meaning that oil companies should theoretically have been best situated to take advantage of a trade war. But we’re already the leading exporter in the world and the oil companies haven’t been making steps to expand operations for quite some time. I’ll come back to that in a minute, but the takeaway here is that Trump’s plan was to incentivize U.S. exports by making us more competitive, thereby encouraging people to build new manufacturing plants here at home.

We’ve written enough, along with the rest of the media world, about how you cannot suddenly rebuild the U.S. economy into a manufacturing hub. It takes decades of planning and investment, a coordinated industrial policy, cooperation with skilled labor, government incentives and a ready and willing global market. We’ve spent decades unraveling this style of economy in our pursuit of a service and financialized economy to turn on a dime and reinvent ourselves.

By driving us into a recession, existing capital expenditure planning has dried up and raw materials have gone through the roof as a result of his tariff policy. The whole gambit is so ill planned as to border on insane. Not to mention, no investment bank or manufacturing company was going to act in response to his trade war—that changes every day, mind you—and start building massive plants. That ship sailed.

How Oil Companies Will Weather the Storm (Spoiler: Mass Layoffs)

Anyway, back to the oil companies and the economy.

Because Trump is so easy to predict you can guarantee he’s going to crow about the price at the pump. That’s one way this potential stagflation crisis will be different from the one we experienced in the 1970s. Crude oil isn’t just the primary input into gasoline, it’s also an important part of manufacturing everything from plastics to pharmaceuticals. It’s in everything. So to the extent that oil prices are going to remain low for the foreseeable future, it will help restrain inflation. In fact, he’s banking on it.

So point to Trump.

Now, the U.S. oil companies can weather the storm for a couple of reasons, but not in the same way a country like Saudi Arabia can. Saudi Arabia will take it on the chin for a couple of years, sure. But they have an enormous sovereign wealth fund and patience. U.S. oil companies can weather the storm because they have cash reserves and the ability to reduce their exposure for a period of time. The most obvious way, which is nightmare fuel for the administration, is by reducing its labor force. You’re going to see massive layoffs in the oil and gas sector over the next 12 to 18 months, which will deepen the impact on the working class. The other way is by extending the useful life of production. In other words, running in place. And they’ve been preparing for this eventuality since before the pandemic.

One of the phrases you’ll hear a lot on the financial channels when it comes to oil companies is “capital discipline.” Companies like ExxonMobil have been reducing operating expenses, streamlining operations, and divesting non-core assets since 2019, netting them more than $12 billion in cumulative cost savings in just five years.

One of the ways they’ve done this is by extending the productive life of their existing wells through the use of new technologies. This has been especially fruitful in places like the Permian Basin, which has what is called a low-permeability environment that has more sand and fewer rocks. This has allowed companies to retool existing rigs with horizontal drilling techniques. It doesn’t work everywhere but it’s been huge for the industry.

That’s why you don’t see them rushing to build out new sites on federal lands or riskier deep water territories even though every administration this century has incentivized them to do so, and no one more than Trump.

The good thing for the oil companies then is that they’re sitting on a lot of cash. The bad thing for us is that they’re sitting on a lot of cash. So if and when oil stays below a certain level there’s going to be a lot of layoffs. More unemployment will only serve to deepen the recession and make it harder for us to recover.

Once again the Trump calculus is as bad as the formula ChatGPT spit out for him on Liberation Day.

The Demand Forecast: It’s Not Pretty

Increased OPEC+ production is just part of the story. The underlying issue is global demand. JPMorgan Chase just lowered its Brent crude estimate from $61 to $58 for 2026. The IEA sees demand growing by only 690,000 barrels per day next year compared to 730,000 this year. The EIA has slightly higher growth of 1 million barrels in 2026 but sees India as the chief driver of consumption. OPEC is the most optimistic with a mark of 106 million barrels in 2026 with India and China as the drivers, which some believe to be a little too optimistic because of the U.S./China trade war.

No matter how you look at it, we’re heading for slumping demand in the long-run, which means that bearish sentiment has overtaken the markets. And that means that the big financial houses and multinational corporations are going to start hunkering down and shedding jobs. This is how downturns turn into bloodbaths.

Now, I hate to be skeptical of Trump’s real motivations but let’s consider: his son-in-law netted a $2 billion deal with Saudi Arabia after his first term, and the Trump organization has recently announced partnerships with a Saudi company (with ties to the Royal family) to build a golf club in Qatar, he just inked a $140 billion arms deal with the Saudis, and he’s actively working on a deal to use the new Trump crypto coin as the backing of a $2 billion stake in Binance from a UAE crypto firm.

I’m sure all of this is above board, totally transparent and legal, and that the President wouldn’t put his family’s interests ahead of the nation’s. It’s just, it’s not him. Not our president. I mean, it’s not like he accepted a $200 million dollar airplane as a gift for his presidential library.

The Silver Lining: Renewables Finally Win?

But I’m going to leave you on a positive note because things have been so shitty lately. There’s an upside to this.

I used to think that high oil prices would incentivize us to move away from fossil fuels. Because I was a child and didn’t understand how the world works. The more money they made on our backs, the more oil companies spent lobbying the government to stall renewable energy initiatives while they spending even more money on advertising trying to convince us that they were transforming from fossil fuel into sustainable energy companies. They weren’t.

So the good news is that spending on renewables will surpass upstream oil and gas investments for the first time this year.

Yay?

There’s your crude update for May of 2025. Here endeth the lesson.