As political leaders push for lower oil prices, energy producers face economic viability. Despite calls for expanded domestic drilling, many operators will not invest unless oil prices stay well above their current $60 per barrel price. At the ASA Energy Valuation Conference in Houston last month, Dallas Fed economist Jesse Thompson highlighted why:¹

• Energy executives surveyed by the Dallas Fed reported an increase in the price of oil needed to justify drilling new wells economically to an average price of $65 per barrel, as economic uncertainty and planned production increases from OPEC+ nations pushed oil prices down.
• A main factor affecting breakeven costs is the price of steel tubular goods. This typically comprises around 8-15% of the total drilling and completion costs for a well, as noted in analyses by Wood Mackenzie and others. The announcement of 25% tariffs on steel imports occurred around the same time and is likely to have contributed to the increase in breakeven costs.
• The industry already expected some layoffs at the beginning of 2025 given the trend toward consolidation and merger and acquisition activity. If WTI were to continue to hover in its recent $60- to $64-per-barrel range, further contraction in payrolls is likely.

Per the Dallas Fed’s graphic below, there is substantial variation in breakeven costs among firms and between basins, ranging from a lower boundary near $40 per barrel and a higher boundary of almost $90 per barrel. As shown, parts of the Permian command both the highest and lowest breakeven prices to drill a new well economically.

During his current administration, President Donald Trump has championed American energy dominance, aggressively advocating for increased domestic oil production as a pathway to lower fuel prices for consumers. Policies aimed at deregulation, expanded drilling rights, and support for infrastructure projects like pipelines were central to this agenda. Trump’s price target, per Goldman Sachs, is in the $40 to $50 a barrel range.²

However, beneath the political messaging lies a complex economic reality: most oil and gas operators are unwilling to drill new wells if prices fall below a key breakeven threshold (currently around $65 per barrel in U.S. shale basins).

Trump’s Energy Agenda: Supply Flood Meets Capital Discipline

Trump’s energy platform was driven by a belief in supply-side economics — boost production and let market forces push prices down. To achieve this, his administration:

• Rolled back environmental regulations
• Expedited permitting processes
• Opened federal lands and offshore areas to exploration³

The idea was simple: if American producers could unleash a flood of new supply, prices at the pump would drop, benefiting consumers and strengthening the U.S. economy.

However, following the financial pain of the 2014–2016 oil price collapse, energy investors demanded returns versus growth. Exploration and production (E&P) companies began focusing on free cash flow, debt reduction, and shareholder returns/stock buybacks instead of aggressive drilling.⁴

In other words, while Trump’s policies aimed to drive prices down, the very companies responsible for increasing production are expected to be unwilling to invest capital in new wells unless prices remain sufficiently high, allowing them to earn a target rate of return on capital employed. Also, the oil market continues to be shaped by forces beyond the reach of any administration or operator by factors such as:

• Global supply risks
• OPEC+ production output
• International conflicts
• Energy transition policies

Looking Ahead: Policy, Prices, and Production

As shown in the illustrative graphic below, current oil prices have fallen below the breakeven pricing for many operators, resulting in reduced drilling.

In the graphic above, prices are shown to be currently around $60 per barrel, with the green line showing a path to President Trump’s target oil price range of $40-$50 per barrel. Economic theory assumes there will be less drilling as prices fall, reducing supplies, causing prices to increase. Once above the breakeven prices, operators would be expected to drill new wells, increasing supply and causing prices to fall.

Reconciling Political Agendas and Economic Reality

President Trump’s vision of lower oil prices through aggressive U.S. production is up against a sobering economic truth: without sustained prices above $65 per barrel, producers will keep rigs idle and capital on the sidelines, or they will buy back their shares at lower prices. Sustainable low prices require one of two shifts: 1) a structural reduction in drilling and completion costs, or 2) policy-driven incentives that align operator returns with national price goals.

As the industry evolves, effective energy policy must balance consumer needs, energy security, and the hard economics of drilling and completing new wells.

WTI Strip Prices Increase

Spot prices and futures prices for the West Texas Intermediate (WTI) contract increased approximately $3.00 per barrel in the near term and increased approximately $0.25 over the longer term. Some factors impacting recent prices include:

• OPEC+ agreed to boost its crude production in July less than feared
• Wildfires in Alberta, Canada, have shut down some Canadian oil production, reducing Canada’s production by about 350,000 bpd, about 7% of Canada's total output⁵

WTI Strip Prices – One Month Change

As shown, the oil price curve is shifting to a state of “contango,” reflecting the market’s expectation of higher future spot prices over the longer term. The contango shape of the curve is very different from the last several years, where the price curve showed “backwardation,” where future expected prices were lower in comparison to current prices.

Oil Price Outlook

The price distribution below shows the crude oil spot price on June 2, 2025, as well as the predicted crude oil prices based on options and futures markets. Light blue lines are within one standard deviation (σ) of the mean, and dark blue lines are within two standard deviations.

WTI Crude Oil $/BBL

Based on these current prices, the markets indicate there is a 68% chance oil prices will range from $50.00 and $73.50 per barrel in mid-September 2025. Likewise, there is roughly a 95% chance that prices will be between $35.00 and $107.00. By mid-November 2025, the one-standard deviation (1σ) price range is $48.00 to $76.00 per barrel, and the two-standard deviation (2σ) range is $31.50 to $115.00 per barrel.

Insights

Remember that while option prices and models reflect expected probabilities rather than certain outcomes, they remain a useful tool for assessing market expectations and risk. Throughout most of 2023 and 2024, crude oil spot prices generally fluctuated within the range of $70 to $90 per barrel. During that period, we observed general increases in futures price volatilities as prices approached the upper and lower bounds of that range. As of June 2, 2025, crude oil spot prices have remained below that range for the approximately three months after a sharp decline to levels not seen since early 2021. For mid-November 2025 pricing as of June 2, 2025, the 1σ range had a spread of $28.00 per barrel, and the 2σ range had a spread of $83.50 per barrel. While these spreads are relatively similar to those observed in prior months, the decline in futures prices has required a higher volatility to sustain these similar dollar-based spreads.

1. Dallas Fed Presentation at the ASA EVC
2. Huileng Tan, “Goldman Sachs analysts read more than 1,000 Trump social media posts. They found a key takeaway about how he talks about oil.” Business Insider, May 14, 2025.
3. Executive Order 13795—Implementing an America-First Offshore Energy Strategy, The American Presidency Project, April 28, 2017.
4. “The great compression: Implications of COVID-19 for the US shale industry,” Deloitte, 2020.
5. “Crude Prices Finish Higher as the Dollar Slumps and Oversupply Concerns Ease,” Barchart, June 2, 2025.