Impact of Falling Crude Prices on Oil Producers
Falling crude prices will eventually translate into lower prices at the gas pump for consumers, but that doesn’t mean it’s all good news ― especially for Texas-based oil producers. The recent decline in crude prices has significant implications for the oil industry, and it’s essential to understand the effects on oil producers, the economy, and the environment.
On Monday, global crude prices sank after OPEC+ agreed over the weekend to surge production for a second month, adding to existing concerns about how tariffs may impact worldwide demand. Brent fell to $60 per barrel, while U.S. crude (West Texas Intermediate) slid by 2% to settle around $57 per barrel. This sudden drop in prices has sent shockwaves throughout the industry, leaving many to wonder about the future of oil production.
“It definitely magnifies what has already become an uncertain backdrop for oil prices,” Bracewell LLP energy partner Austin Lee said. “The combination of recent trade policies and the previous output increase from OPEC had already shaken things up and this just adds to that.” The uncertainty surrounding oil prices has made it challenging for oil producers to make informed decisions about their operations.
Impact on Gas Prices
Eventually, declining oil prices will lead to lower prices at the pump, with AAA data showing the average price per gallon of gas was $2.74 as of Monday, below the national average of $3. This is good news for consumers who will benefit from lower gas prices. However, the benefits of lower gas prices are not universal, and oil producers are likely to feel the pinch.
Lower gas prices provide little incentive for the sector to pump more crude in the U.S., the world’s largest energy producer. The lack of incentive to produce more oil could have significant implications for the economy and the environment. The oil industry is a significant contributor to the economy, and a decline in production could lead to job losses and economic instability.
Impact on Oil Producers
For the prolific Permian region of West Texas ― which together with southeastern New Mexico cranked out more oil than anywhere else in the U.S last year, the Energy Information Agency notes ― the average breakeven WTI price to support profitable drilling activities sits above $60 per barrel. This means that oil producers in the region need oil prices to be above $60 per barrel to break even, let alone make a profit.
The Federal Reserve Bank of Dallas recently noted that energy executives hiked their breakeven pain threshold to justify more drilling in the face of spiking economic uncertainty; meanwhile, OPEC’s politically fraught decision pushed down oil prices all over again. The increasing uncertainty surrounding oil prices has made it challenging for oil producers to plan for the future.
Break-Even Prices
“It is noteworthy that the average break-even oil price among large producers…increased from $58 per barrel in 2024 to $61 in 2025, and these producers are collectively responsible for the large majority of U.S. onshore crude oil production,” the Dallas Fed report noted. This increase in break-even prices means that oil producers need higher oil prices to break even, which could lead to a decline in production.
“In contrast, the average break-even price among smaller producers decreased from $68 per barrel to $66, likely due in part to mergers and acquisitions as well as reduced activity among these firms that typically have higher costs.” The decrease in break-even prices for smaller producers could lead to an increase in production from these companies.
Impact on Energy Investment
Weak prices also put a damper on energy investment activity. Lee said the slide in crude has given potential buyers “some pause” over certain transactions, as they take another look at how they are valuing potential acquisitions. The decline in energy investment could have significant implications for the industry, leading to a decline in production and employment.
Henry Benton, a Dallas partner at Troutman Pepper Locke LLP, said the price drop will impact the oil and gas mergers and acquisitions market. Energy-related deals had already cooled in connection with the pricing volatility the last few months. The decline in mergers and acquisitions could lead to a decline in investment in the industry.
“Increasingly, companies that planned to sell assets into what had been expected to be an active year for oil & gas M&A in 2025 are pulling their assets off the market and are going to wait for a better pricing environment,” Benton said. The decision to pull assets off the market could lead to a decline in investment and production in the industry.
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Conclusion
In conclusion, the decline in crude prices has significant implications for oil producers, the economy, and the environment. While lower gas prices may be beneficial for consumers, they provide little incentive for oil producers to pump more crude. The increasing uncertainty surrounding oil prices has made it challenging for oil producers to plan for the future, and the decline in energy investment could lead to a decline in production and employment.
Frequently Asked Questions
Q: What is the current price of crude oil?
A: The current price of crude oil is around $57 per barrel, with Brent falling to $60 per barrel.
Q: How will the decline in crude prices affect gas prices?
A: The decline in crude prices will eventually lead to lower prices at the pump, with AAA data showing the average price per gallon of gas was $2.74 as of Monday.
Q: How will the decline in crude prices affect oil producers?
A: The decline in crude prices will provide little incentive for oil producers to pump more crude, and the increasing uncertainty surrounding oil prices has made it challenging for oil producers to plan for the future.
Q: What is the break-even price for oil producers?
A: The average break-even oil price among large producers is around $61 per barrel, while the average break-even price among smaller producers is around $66 per barrel.
