‘Drill, Baby, Drill’ With Low Oil Prices?
- rorykevinproud
- Apr 17
- 2 min read
17 April 2025 Poten & Partners
How will U.S. goal of energy dominance deal with low oil prices?
U.S. crude oil production has grown rapidly over the last decade, even though there were some setbacks along the way. During the COVID driven demand and oil price crash, which was further exacerbated by Saudi Arabian production increases, U.S. production dropped from around 20.5 million barrels per day (Mb/d) in January 2020 to 16.2 Mb/d by April 2020. While the current situation is very different from 2020, the combination of growing uncertainty about short term oil demand, due to economic uncertainty and the production increases announced by OPEC+ have caused oil prices to decline by more than $12 over the last week. This opinion will take a look at what this might mean for U.S. crude oil production and exports.
President Trump came into office with a promise to increase energy production by loosening regulations that slow production growth and by other measures, such as providing easier access to Federal lands for oil and gas production. He is trying to implement these policies through executive orders, some of which may be challenged in courts. However, in contrast to some other oil producing countries, the U.S. government does not drill wells and produce oil and gas. In the U.S., private companies are the ones performing such work and they will only do so if these activities are profitable. Prior to the COVID price crash in 2020, many of these companies were focused on maximizing production as investors rewarded growth over profitability. However, they learned a lesson during the crash as many of the producers went bankrupt and assets were sold to competitors. So, during the recovery after 2020, the focus switched to profitability and shareholder returns. Cash flow was returned to investors in the form of dividends and share buybacks, rather than reinvested into maximizing production growth.
The oil price decline over the last week was caused by the fallout of the tariff announcement by President Trump that triggered panic in the financial markets and heightened fears of a recession in the U.S. and other countries. This tariff announcement was followed by a statement from OPEC+ that they would increase oil production by 411 Kb/d in May, about three times the anticipated increase. On Wednesday, President Trump announced that he would pause the implementation of the ‘Reciprocal tariffs’ by 90 days on most countries, which led to a partial recovery of oil prices, but on Thursday WTI had fallen back to $60/bbl. Overall, the risk of a recession remains elevated due to increased policy uncertainty, which makes it hard for companies to decide on investment and hiring strategies. Under these circumstances, many companies decide to hold onto their cash and wait.
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