Trump Wants Opec To Bring Down Oil Prices. That Could Hurt America's Booming Energy Industry.

A pump jack operates at a well site leased by Devon Energy Production Company near Guthrie, Oklahoma September 15, 2015.

REUTERS/Nick Oxford

• Donald Trump called on OPEC to lower the cost of oil during his speech at Davos.
• But lower crude prices could hurt US producers, cutting into profitability.
• OPEC has been holding off increasing supply to try and boost prices, which have sagged in the last year.

President Donald Trump called on OPEC states to slash oil prices as a way to get Russia to the negotiating table and bring an end to the war in Ukraine — but the move could backfire on the US crude industry, which has boomed in recent years.

During his virtual appearance at the annual World Economic Forum in Davos, Switzerland, the president questioned why OPEC+ has not done more to lower global crude prices, a move he said would heap more pressure on Russia to end its war in Ukraine.

"I'm also going to ask Saudi Arabia and OPEC to bring down the cost of oil," Trump announced, later adding: "You've got to bring down the oil price, you've got to end that war. They should have done it long ago; they're very responsible actually, to a certain extent, for what's taken place."

Capital Economics in a note said that these comments reflect Trump's desire to deliver lower prices at the pump for US drivers. However, in doing so, Trump may be brushing aside US oil producers, the firm said.

Though non-OPEC production takes up most of the world's oil market share, oil from the Saudi-led coalition still accounts for a significant chunk of the market.

In other words, how the cartel adjusts production to shift supply matters to other oil-producing countries.

This dynamic was illustrated in 2020. A disagreement between Saudi Arabia and Russia led both countries to flood the market with extra supply, tanking crude prices at a time when the market was already being hurt by the pandemic. This resulted in pain for US producers, and sparked a spate of bankruptcies, mergers, and layoffs.

The two-month price war ended with a nudge from Trump. The president threatened to pull US troops out of Saudi Arabia if production cuts weren't implemented, making prices more manageable for American firms.

Nearly five years have passed, and the US energy industry is no less sensitive to pricing volatility. Lower prices chip away at profitability and offer less incentive to boost productivity.

"With estimates putting breakeven oil prices for new wells in key oil-producing regions in the US between $60-70pb, oil prices wouldn't have to fall that far from current levels (~$75pb for WTI oil) before it would become uneconomic to develop some of these higher-cost new wells," Capital Economics wrote. "And it would be a big blow to Trump's obvious aspirations to exploit Alaska's even higher-cost oil resources."

The president has made drilling a core part of his platform, given his view that US producers have been unfairly constrained by regulation.

But with America pumping out crude at historic highs, even industry insiders have questioned the need for expanded production.

More unclear is whether OPEC will entertain Trump's request. For over a year, the cartel has collectively narrowed production to boost prices; members are highly dependent on energy revenues, and have been facing rising budget deficits as oil prices have fallen.

Historically, Saudi Arabia has been known to unleash supply in order to deal with rivals or punish unruly OPEC members. In fact, reports emerged that the kingdom was considering doing this at the end of last year to bring some countries in line with cartel policy, as some state, such as Iraq and Kazakhstan, were called out for pumping above OPEC quotas.

"Amid clear frustrations on the part of Saudi officials about overproduction amongst some OPEC+ members last year, we have argued on a number of occasions that the risk of Saudi Arabia opening the floodgates to claw back market share was growing," Capital Economics said. "[Trump's] explicit invitation from Trump might be the cover that Saudi needs to open the spigots."

Oil prices fell after Trump's comments. Brent crude, the international benchmark, was trading at $78.11 per barrel as of 3:22 p.m. ET.

Even without OPEC's help, analysts expect a major supply glut to weigh on prices through 2025. The US Energy Information Administration projects Brent to hit $74 per barrel this year, before sliding to $66 a barrel in 2026.