Oil Giants Tell Trump: Go Frack Yourself

As I’ve been reporting, more evidence that there is some magical spigot of oil that can be opened to lower the price of gasoline is a fantasy.
Oil Giants have told the administration there is no way they will drill more, crash the price of oil, and their own stock.
Some talk here building more pipelines and other items on Big oil’s wish list, but resistance will keep building to those kinds of projects as climate change tightens its grip.

Wall Street Journal:

President Trump wants to boost oil drilling. His allies in the U.S. shale industry and Saudi Arabia are pushing back.

Trump for months has encouraged the U.S. shale industry to “drill, baby drill,” but another American oil boom isn’t in the cards soon, no matter how many regulations are rolled back, according to oil executives. After many producers overdrilled themselves into bankruptcy during the shale boom’s heyday, the industry is now focused on keeping costs down and returning cash to investors.

The president’s advisers concede that U.S. frackers won’t pump much more, according to people familiar with the matter. The advisers say his best lever to bring down prices might be to persuade the Organization of the Petroleum Exporting Countries and Saudi Arabia, the group’s de facto leader, to add more barrels to the market.

But Saudi Arabia has told former U.S. officials that it also is unwilling to augment global oil supplies, say people familiar with the matter. Some of those former officials have shared the message with Trump’s team.

The president believes a fresh tidal wave of oil would solve many of his problems: It could quell inflation and pave the way for interest-rate cuts. It could also strengthen his hand in coming confrontations with petrostates Russia and Iran. 

In a January speech, Trump said he planned to ask Saudi Arabia and other OPEC members to bring down oil prices. The president is planning to visit the kingdom in one of his first foreign trips of his second term, and he is expected to push for higher Saudi oil production in person.

Trump’s fixation on oil prices is vexing to some in the industry. Currently around $73 a barrel, prices are relatively low compared with 2022, when they averaged over $94 a barrel and the national average gasoline price hit a record over $5 a gallon. Gasoline prices are averaging $3.10. The president has declared a national “energy emergency” and vowed to cut Americans’ overall energy costs in half.

Keith Kellogg, Trump’s special envoy to Ukraine and Russia, has said global producers should try slashing oil prices to $45 a barrel, to pressure Russia into ending the war with Ukraine.  

Such prices could be disastrous for U.S. frackers and Saudi Arabia—Trump’s two most powerful friends in the global oil market. The last time prices sank below $45, during the pandemic in 2020, it prompted a painful war for market share between Saudi Arabia and Russia and pushed dozens of shale drillers into bankruptcy.

At lower oil prices, Saudi Arabia would struggle to generate enough revenue to pay for social services, monthly payments to citizens and big infrastructure projects. It will need about $90 a barrel this year to balance its budget, according to the International Monetary Fund.

There is a clash coming between Trump and Saudi Arabia over oil prices, one of the former U.S. officials said. 

Trump’s advisers have told some oil-and-gas donors they understand the president can’t rely on U.S. frackers to boost production in the short term, people familiar with the discussions said. 

“Companies are no longer pursuing growth at all costs,” said Kaes Van’t Hof, president of West Texas oil producer Diamondback Energy. “Shale is in a much different phase of its life cycle.” 

Longer term, the advisers say Trump’s support of U.S. oil and gas—including by scrapping environmental regulations—will make the sector more appealing to investors. That, in turn, would lead to more capital flowing into the industry and eventually increase output. Making it easier to build pipelines and other infrastructure could also increase fossil-fuel demand, potentially spurring drilling, the advisers say.

Aspirations to marginally boost U.S. output over time aren’t completely unrealistic, said Ed Crooks, vice chairman, Americas, at energy consulting firm Wood Mackenzie. It depends on whether the administration is able to improve the economics of production, but it could take years and would pale in comparison to shale’s boom years. 

Among Trump’s early regulatory changes, “we don’t see anything that will make a colossal difference to the economics of production,” Crooks said. 

Oil executives said they expect U.S. production, which is already at record levels, to grow modestly this year, unless prices surge. The Energy Department projects domestic output will rise about 2% to about 13.7 million barrels a day by December, and then stay relatively flat in 2026.