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Donald Trump’s mantra during his campaign for the presidency to the American public and U.S. oil producers was: “Drill, baby, drill.” One key problem? Oil producers aren’t interested.
That’s the conclusion of industry experts, who point out that oil producers are wooed far more by profitability than in pumping as much oil as possible out of the ground.
Too much oil lowers prices and burns up profitability, even though it might make consumers happy. American shale firms are already pumping historic amounts of oil. And there’s a supply glut in the global market.
“As crude prices come down, we expect the industry revenues to go down and profits to go down,” ExxonMobile CEO Darren Woods told CNBC last week.
Oil tycoons who flocked to support Trump want him to drop all barriers and go after alternative energy, but they also worry about an over supply of oil.
“Our stocks will be absolutely crushed if we start growing our production the way Trump is talking about it,” Bryan Sheffield, a Texas oilman who contributed more than $1 million to Trump’s latest campaign, told The Wall Street Journal.
American producers aren’t looking now to boost supply, and likely won’t be enticed to “drill, baby drill” until prices reach an average $84 per barrel, which is close to 15 percent above current prices, according to the Kansas City Federal Reserve.
U.S. crude prices fell close to an additional 2 percent on Tuesday as U.S. tariffs on China took effect and China imposed a 10 percent tax on American crude oil.
But Trump is nevertheless looking to lower prices.
After a phone call last month with Saudi Crown Prince Mohammed bin Salman he said that he planned to ask him to lower oil prices. The president called on all OPEC countries to do the same in a recent speech at The World Economic Forum at Davos. Trump argued that it would put pressure on Russia to withdraw from Ukraine as its income from oil would sink amid the dropping prices, making the war too expensive.
But that’s not likely to happen, according to Business Insider, and wouldn’t please American producers who would also have to compete with lower prices. OPEC members have held back output in the past two years to increase market prices amid oil’s price slide, but is expected to gradually roll back production curbs.
Whatever OPEC does, analysts expect a major supply glut to weigh down prices through 2025, according to the Insider.
