“Bloomberg writes, Trump has said he’ll push America’s shale companies to ramp up output”
Our Take, With Doug Sheridan
Bloomberg writes, Trump has said he’ll push America’s shale companies to ramp up output—telling supporters pump prices would fall even if it meant producers “drill themselves out of business”— but his second term follows two straight years of record US output.
Against that backdrop, analysts and traders see the US adding just 251,000 barrels a day from the end of this year through 2025, the slowest pace since the pandemic-driven drop in 2020.
There are few levers Trump can pull to change that. Opening new federal lands to exploration would take time, and some of his other proposals—such as a trade war with China—are widely seen as bearish for oil because they would erode demand for the commodity.
There is cause for skepticism, of course. Last year, the shale patch surprised the market by adding a million barrels a day of output, despite independent producers vowing limited growth. And heavyweight producers—including ExxonMobil, Chevron, and ConocoPhillips are expanding rapidly, posting increases of more than 8% in the past year.
Macquarie Group, which correctly predicted last year's stunning growth, sees output reaching an unprecedented 13.9 million barrels a day by the end of this year, 5% above current Department of Energy estimates.
That growth, combined with new barrels from Guyana, Brazil and Canada, have set the stage for a massive crude glut in 2025, with the International Energy Agency (IEA) warning of a 1 million barrel-a-day global supply surplus.
Macquarie sees supply outpacing demand by 2.4 million barrels a day in the first quarter, when Trump will be Sworn in. And traders are already pricing in a surplus, with WTI retreating by more than 3% this year.
Ultimately, though, oil prices could be the biggest obstacle to US growth, according to Raoul LeBlanc, VP for North American unconventional at S&P Global Commodity Insights. "At $70, shale independents can both grow and generate free cash flow," he said. "But at $60 they have to make a choice—and we believe they'll choose cash for the shareholders."
Our Take 1: It's interesting how much focus there is on oilfield volumes... rather than costs. To wit, if the Biden admin has in fact placed onerous regulations and limits on producers, shouldn't the reversal of those by a Trump admin—holding all things constant—at least result in lower costs, and thus higher profits, for US operators? We'd argue yes, but see little celebration of this fact.
Our Take 2: The other dynamic we rarely see mentioned in the press is the effect of lower crude prices on future demand. We'd go as far to argue that, ceteris paribus, every full year in which Brent averages below $75 peak oil consumption is pushed out another two to three years. In other words, low crude prices in 2025 set the stage for higher crude consumption in the future. Are we wrong?