The price of oil has dropped to some of its lowest levels of the year, making it less expensive for Americans to fuel their cars, but further straining U.S. oil companies, which have been idling drilling rigs and shedding thousands of workers.
At less than $59 a barrel, U.S. oil prices are now about 19 percent lower than they were at the end of last year. That is low enough that it no longer makes financial sense for many companies to drill new wells.
The main reason for the drop is that global oil production has been growing more quickly than demand.
The recent slide below $60 a barrel came this month, after Israel and Hamas agreed to a cease-fire, alleviating concerns that Middle East conflicts would disrupt the flow of oil. At the same time, heightened trade tensions have weighed on expectations for economic growth worldwide and, thus, demand for fuels.
Oil is one of the few things that has become cheaper this year, providing consumers a rare bit of good news on the inflation front. Many other goods and services, including food, cars and electricity, have become more expensive while hiring has cooled, leading to greater uncertainty among consumers.
Energy prices figured prominently in the 2024 presidential campaign, and President Trump has urged Saudi Arabia and other big oil producers to help drive down prices. But lower prices will undermine another of the administration’s aims — to greatly increase domestic oil production.
If prices remain around these levels for a long stretch or if they fall further, as many analysts, including at the Energy Department, think is likely to happen, the U.S. oil industry will be hard pressed to keep growing.
Oil had been hovering between $60 and $70 a barrel for much of the year, lower than many companies would prefer, but not enough to dent production. U.S. output climbed to a record 13.6 million barrels a day in July, according to the Energy Information Administration.
That run is likely just about over, oil executives said.
“Activity level has now fallen to a place where it would be very difficult to sustain current production,” Ron Gusek, the chief executive of the fracking company Liberty Energy, said in an interview last week.
For decades, cheap oil delivered a huge economic boost to the United States. But now that the country is the world’s top oil producer and much more energy efficient, that equation has become more complicated.
Lower oil prices generally mean cheaper gasoline, which now costs $3.07 for a gallon of regular, down about 3 percent from this time last year, when it cost $3.16, according to the AAA motor club. But inexpensive fuel also hurts companies that are big employers and taxpayers in states like Texas and North Dakota, which favored Mr. Trump by a wide margin in the presidential election.
“It’s still a positive for the U.S. economy when oil prices decline. But it’s much less of a positive than it used to be,” said Chris Lafakis, the director of economic research at Moody’s Analytics.
Analysts and other industry observers have worried all year that the world was pumping more oil than it needed. In addition to the United States, the OPEC Plus oil producers group, led by Saudi Arabia, has been ramping up output.
Lower prices have dented oil company profits, which have begun to fall from the very high levels of recent years. That has added pressure on executives to cut spending.
There are about 13 percent fewer rigs drilling for oil in the United States than there were a year ago, according to Baker Hughes, an oil field service company. Chevron, ConocoPhillips and other oil companies announced deep job cuts even before the recent slide below $60 a barrel. Employment in oil and gas production and related services is down 3 percent this year through July, according to the Bureau of Labor Statistics.
Higher prices for natural gas, which often comes out of the ground with oil, have helped blunt the negative economic effects of lower crude prices.
But more layoffs and other spending cuts are likely if prices remain below $60 a barrel through the end of the year, said Jesse Thompson, an economist with the Federal Reserve Bank of Dallas.
“The lower price has to stick around a while for it to really hit the oil field,” Mr. Thompson said.
A big challenge for the industry is that oil prices have been falling at the same time that Mr. Trump’s higher tariffs have made key materials used by the industry more expensive. The steel pipe that companies use to line oil wells, for example, cost 17 percent more in September than it did a year earlier, J.P. Morgan analysts wrote in a recent note to investors.
“Putting tariffs on doesn’t reshore things in the near term. In the near term, it only makes life more expensive for all of us,” said Mr. Gusek, whose predecessor at Liberty, Chris Wright, is now Mr. Trump’s energy secretary. “In a very challenged operating environment, every one of those dollars matters.”
Rebecca F. Elliott covers energy for The Times.
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