When the United States and Israel attacked Iran in February, a temporary surge in oil prices was a given. Seven months on, with the international price for a barrel of crude around $100 and tankers still cowering in the Strait of Hormuz, drivers seem resigned to paying $5 for a gallon of gas for the foreseeable future. They needn’t be: Oil’s big bust is coming. The stage is set for a price crash, and not the kind that would benefit President Trump before the midterm elections.
Oil busts happen first in drips, then in blowouts. In March, at the oil industry’s annual jamboree in Houston, executives celebrated how the Trump administration had simplified their lives. Older heads, however, recalled a darker time. In early 1986, oil prices fell from roughly $30 a barrel to $10 after Saudi Arabia decided to flood the market. The combination of a U.S. slump and the fall in global oil prices took Houston into its own version of the Great Depression.
Something similar will happen if the Iran war ends and shipping resumes freely through the strait. A dramatic fall now looks likely. During the recession that followed the 2008 financial crisis, prices fell from around $140 a barrel to $40, and during Covid they plummeted from $60 to $20. A similar drop today could take prices to $30 and below. The commerce secretary, Howard Lutnick, said recently that the administration wants oil prices to collapse, with the goal of $2-per-gallon gasoline, forever.
While an appealing campaign pledge, a price that low would devastate the U.S. oil industry. The break-even price for American oil producers drilling new wells is north of $60 a barrel. In Mr. Lutnick’s world, the cheering oil barons of Houston, and their employees and dependents, would soon face economic Armageddon. Changes of a few percentage points in supply and demand may not seem like much, but it is in the margins where you find the seeds of collapse.
Source: New York Times Top Stories · Summarized by HeadlinesBriefing