As I have posted here many times, big oil price moves (up or down) that are based on FEAR seldom last for long before the oil price starts heading back to the right price, which is based on supply and demand fundamentals. Just remember that the "Paper Traders" control what happens to oil price you see (the front month NYMEX contract).
The recent move over $70/bbl was based on FEAR that Trump will slap sanctions and tariffs on any country that buys Russian oil. The Paper Traders that were shorting oil futures contracts reacted by closing those positions.
A price pullback on Friday is understandable because previous moves to reduce Russian oil exports have not been very successful. Paper Traders that are long the oil futures contracts are harvesting some profits this morning.
I do believe that the "Right Price" for WTI is within the range of $75 to $85, but there is still a lot of uncertainty in the market and a lot of geopolitical risk to oil supplies. FEAR of the Tariff War is still out there, but Team Trump has made a lot of progress this week.
Below are comments from Keith Kohl, one of the true exports on the global oil market. My comments are in blue.
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Trump Just Flipped the Oil Market on Its Head
Keith Kohl
I knew President Trump had it in him.
After months of calling for lower oil prices, sometimes suggesting that WTI crude should be trading between $40-$50 per barrel, he finally made a u-turn recently and said that oil prices are too cheap.
Didn’t anyone else find it odd that suddenly he’s saying prices are too low… with a barrel of WTI crude trading above $70?
Let’s be fair for a second, because every President that has ever sat in the Oval Office wanted low crude prices. Cheap oil means cheap prices at the pump. So not only are their constituents happier paying less, but your political opponents can’t attack you for it.
How many times during an election cycle did President Biden get lambasted in the media for higher energy prices.
Now that we’re more than halfway through the summer driving season, when U.S. oil demand is seasonally at its greatest and set to decline, President Trump can drop the facade.
But be careful what you wish for. Cheap oil is a double-edged sword.
The veteran members of our investment community have known that $50 oil was a myth. Even though prices dipped into the mid-$50s, staying there for any sustained period would’ve been impossible. < If WTI drops to $50/bbl every upstream company I follow will slash their drilling programs and within a few months U.S. oil production would decline rapidly. Trump does not want that to happen.
We knew that oil priced that low was a ticking timebomb for our domestic production. Even when it was glaringly obvious that production growth in our tight oil plays — which accounted for nearly ALL of our growth over the last 17 years — required breakeven prices in the mid-$60s, the media had been sucked into the illusion that our oil sector was invincible. < As you all can now see from the Q2 results our Sweet 16 companies are report, upstream oil & gas companies can be profitable with WTI in the low $60s (WTI averaged $63.74/bbl in Q2), but U.S. crude oil production is starting to decline.
Well, the other shoe is starting to drop, and I think President Trump is starting to sober up to the reality of our energy security.
Nobody can ignore the supply crisis that’s about to occur. < If the Permian Basin oil production goes on decline, U.S. total oil production will go on steady decline.
And it’s something President Trump can’t afford right now, especially if he wants to wield energy as a geopolitical weapon.
If there’s one thing that EU’s sanctions on Russia’s oil industry have taught us, it’s that price caps simply won’t work; nor will directly targeting Russian imports. The only thing those measures accomplished was successfully setting a floor for oil prices.
And if we’re going to be brutally honest here, all that Russian crude was STILL making its way into the market, whether its from black markets or from buyers that simply don’t give a damn about sanctions.
Both India and China were more than happy to scoop up as much cheap Russia crude as they could get their hands on.
But I think President Trump may finally have the answer… maybe.
You see, his about-face on oil prices isn’t just a domestic play — it’s a global strategy.
This week, Trump has been pivoting hard from closing trade deals toward other foreign policy — specifically, ending the Russian-Ukraine war — not by twisting Putin’s arm directly, but by choking off his wallet.
And this time, Trump isn’t going after Russia’s oil producers. He’s going after the customer.
Enter India.
India buys roughly 35% of its oil imports from Russia, a relationship that has ballooned since Western sanctions left Russian barrels begging for buyers. India saw a bargain, the West looked the other way, and Putin’s crude kept flowing like nothing ever happened.
Now that pipeline of cheap crude is in Trump’s crosshairs.
But instead of imposing more price caps or half-hearted export controls, Trump is cutting off the demand. His team has already issued tariff threats and penalty warnings to India over its continued purchases of Russian oil and arms.
And wouldn’t you know it? Indian state refineries have paused Russian oil imports as of this week.
That pause isn’t a bluff, it’s the opening gambit in Trump’s real strategy: Killing two birds with one deal.
By pressing India to end its dependence on Russian crude, Trump not only undermines Putin’s war chest, he also creates an energy vacuum India has to fill.
And where will they turn for those replacement barrels? I don’t think it’s a coincidence that we’re currently negotiating a massive trade deal with India at a time when India suddenly finds itself in need of a new source for oil.
I think that’s the tradeoff Trump is dangling: stop buying from Russia, start buying from us — and we’ll throw in some sweet trade incentives while we’re at it. As we saw in the recent trade deal with the EU, President Trump is using our energy sector to his advantage.
It’s the sort of negotiation Trump thrives on — one that lets him claim a diplomatic win and an economic one in the same breath. The U.S. boosts its energy exports, India secures reliable supply, and Russia loses a top buyer.
Everyone wins — except Putin, of course.
But here’s where it gets even more interesting for us: this entire maneuver hinges on whether the U.S. can actually produce enough oil to fill the gap.
And that’s why, after months of griping about high gas prices, Trump suddenly says oil is too cheap.
Because he knows exactly what we know: if prices stay in the $60s, U.S. production doesn’t grow. In the very best case scenario, it remains flat, or slightly declines.
Despite the myth of infinite shale supply, tight oil producers have spent the last year pulling back. Capital budgets have shrunk, rigs have been idled, and well completions have slowed to a crawl. < This morning Baker Hughes announced that during the week ending July 25th the number of rigs drilling for oil in the U.S. declined by 7 to 415, which is 67 active rigs lower than it was a year ago. At the current active drilling rig count, there is NO WAY that U.S. oil production can keep growing.
They’re not drilling more, they're drilling less.
And why wouldn’t they? The breakeven for many of these plays hovers in the mid-to-high $60s per barrel, with many producers only greenlighting new wells if WTI stays comfortably above $70.
In other words, cheap oil means no growth. And no growth means no barrels for India.
Now Trump — like any seasoned real estate developer — understands this basic principle: if you want more supply, you need better margins.
That means oil needs to rally. Not to $100, but certainly above $70. That’s the price floor President Trump is tacitly setting with this strategy, and it’s the reason he’s giving up the “cheap gas” soundbite he clung to just a few months ago.
In other words, President Trump needs producers to come back to the table... Fast!
But here’s the twist: this isn’t going to be a drilling boom like the last time.
We know that the next surge in U.S. supply — if it comes — won’t be driven by rig count; it’ll come from efficiency.
Companies that can extract more barrels per foot, per frac stage, per dollar spent — those are the winners now. Not the ones with the most land, but the ones with the best completions team, the sharpest engineers, and the leanest capital structure. < These are the "Elite Eight" in our Sweet 16 Growth Portfolio.
That’s the real opportunity for us, and we’ve already seen who they are, too.
In past cycles, they were the companies that kept outperforming even when rig counts fell.
They were the companies investing in next-gen drilling technologies, in real-time well data, in smarter pad designs and zipper fracs. They’re the reason breakevens have slowly inched downward — not because the geology got easier, but because the engineering got better.
And now that Trump is laying the groundwork for a massive export surge to new, eager customers like India — and openly admitting that oil prices need to go higher
Don’t be fooled by the headlines about softening demand or seasonal lulls. What we’re watching is the beginning of a geopolitical oil reshuffle, with the U.S. and India aligning on energy, and Trump actively engineering the conditions for a domestic production rebound.
He just needs prices to cooperate. And he’ll make sure they do.
Dan Steffens
Energy Prospectus Group |
