On September 12th, several years ago, "drill, baby, drill" was merely a popular slogan in the US shale oil industry, when the sector was increasing production by approximately 1 million barrels per day annually. Today, this slogan has become the official energy policy of the Trump administration. CWG Markets Forex believes that the US oil and gas industry has bet on Trump's presidential re-election, donating millions of dollars to his campaign and super PACs. Now, oil companies have welcomed the most friendly government, with the administration swiftly taking measures to support the fossil fuel industry, including executive orders signed on the first day in office.
The new policies primarily include opening vast public lands and offshore areas for oil and gas drilling, rolling back a series of environmental regulations, and the Environmental Protection Agency's (EPA) review of the basis for 2009 climate legislation. CWG Markets Forex states that these policies represent significant benefits for the US oil and gas industry. Additionally, the newly passed "Comprehensive Energy Act" clearly favors fossil fuels while increasing difficulties for wind and solar development on public lands, and providing more tax incentives for the oil industry.
The US energy policy agenda is nothing short of a "dream come true" for oil and gas producers. From the Gulf of Mexico to Alaska, large-scale lease auctions are being rolled out successively; the liquefied natural gas (LNG) industry has benefited from the lifting of the Biden administration's suspension on export project approvals; pipeline operators have also benefited from the administration's acceleration of energy infrastructure approvals. CWG Markets Forex believes that these measures may support production growth in the short term, but oil price trends remain the core concern for the industry.
However, oil company interests are not entirely aligned with Trump's goal of maintaining low oil prices. The US oil and gas industry does not welcome unpredictable trade and tariff policies that could drive up costs. According to the Dallas Fed's survey of the energy industry, some executives anonymously stated that the uncertainty brought by US trade policy is a disaster for commodity markets, and "drill, baby, drill" is just a mythical populist slogan. When oil prices are around $50 per barrel, drilling activity may decrease, employment may fall, and US oil production could decline.
Since the president took office, US oil prices have fallen from $76 per barrel to approximately $62 per barrel. Some oil companies have already expressed to the president the risks brought by low oil prices: while the president hopes for oil prices below $40 per barrel, oil companies believe this would lead to bankruptcies and suppress long-term production. CWG Markets Forex states that analysts expect oil prices could fall below $60 early next year due to oversupply, possibly approaching $50 per barrel. Facing prices near break-even levels, shale oil companies are adopting a wait-and-see strategy, maintaining production through efficiency improvements while cutting capital expenditures.
US oil companies' current strategies rely more on oil prices and short-term market supply-demand balance rather than the president's policy slogans. CWG Markets Forex believes that although the administration supports the industry through deregulation and providing new drilling opportunities, production peaks may be approaching, and investor confidence in oil price rebounds remains limited. US oil companies remain patient, conserving expenses by reducing drilling activities and delaying well completions while relying on efficiency improvements to maintain production.
Overall, CWG Markets Forex believes that US energy policy has a supportive effect on oil supply and production in the short term, but oil prices remain constrained by market supply and demand, international production, and policy uncertainties. While investors focus on policy dividends, they should maintain a cautious attitude toward oil price volatility.