Oil is cheaper than it has been since early 2021, when the price of a barrel of crude was still recovering from its pandemic crash.

The price of a barrel of West Texas Intermediate started Monday morning at just under $58 a barrel. That is more than twenty bucks cheaper than a year ago.

And it is likely to head even lower: Over the weekend, the members of OPEC+ said they will boost supply.

So, yay, cheap gas, right? Not so fast. It is possible for a barrel of oil to be too cheap.

In an ideal world, oil companies would like a barrel of crude to sell for more than the break-even price.

“It's the price of oil at which oil companies can profitably drill a well,” said Mark Finley, a fellow at Rice University’s Baker Institute. 

Like any business, they want to make money after taking into account all their costs.

“It's everything from having your corporate headquarters to buying the land, or buying the rights to the land, lining up a drilling crew, paying for the pipe and fracking fluid,” said Finley.

Every company and every drilling project has its own break-even price. But in general, $60-ish dollars a barrel is the sweet spot for producing oil onshore in the U.S.

When prices go below that, some companies halt production. There’s some evidence this happened briefly in early April, when prices dropped and so did active oil rigs, said Matt Smith at the analytics firm Kpler.

“It's a clear signal that we hit that break even and broke through it there, back in early April, and here we are again, testing these levels again,” said Smith.

If prices stay low, oil companies will have a choice to make: Either invest in new production, or give back to their investors, who’ve been demanding more consistent dividends and share buybacks. Smith said companies will probably choose the latter.

“You want to keep your shareholders happy, rather than producing an incremental barrel of oil which has lost you money to produce,” said Smith.

But while low prices may throw a wrench into new drilling plans, they may not be too much of a threat to the overall industry, said Amy Myers Jaffe at New York University. Because it's consolidated a lot in recent years, and bigger firms are better able to weather a bad market. 

“I think that it would take a much more prolonged and much lower price to get a shakeout than it has in the past,” said Jaffe.

If the economy falls into a recession, Jaffe said, while tariffs drive up the cost of steel and other materials oil drillers need, then the industry could feel more of a pinch.