Incoming U.S. President Donald J. Trump says he wants to reduce “energy prices” (whatever that means and he seems to mean gasoline prices) by 50%. And if that bankrupts the companies that produce oil, refine it, and let you pump it into your ICE auto for money, so be it.
At a late October campaign event in Greenville, N.C., Trump said, “I’ll get those guys drilling. If they drill themselves out of business, I don’t give a damn.”
Count on it, that won’t happen. Trump can make it easier for energy companies to exploit resources on federal land, somewhat streamline construction of natural gas pipelines and LNG export terminals. But the business owners won’t sell those products for less than it costs to deliver them.
It isn’t known if Trump understands this, but the suspicion is he’s just engaging in his normal bluster. He does have experience with failed businesses. It’s unlikely that the billionaire energy executives who donated lavishly to his campaign will let Trump’s bloviating become reality. Nor is there any way he can accomplish his price goal by flooding the market with oil and gas. It’s also important to understand, even if Trump does not, that oil prices are established by world markets, not by U.S. presidents.
The oil and gas industry has problems. Producing more and more oil and gas won’t solve them. A few decades ago, a geologist named M. King Hubbert (1903-1989) posited something that came to known as “peak oil,” a Malthusian notion that the world would sometime soon run out of crude oil. After a bit of a flutter, “peak oil” became a dead letter. Then it resurfaced in the aftermath of the “oil crisis” years of the mid-1970s many of the years that followed.
In time experience showed there is no imminent limit to crude oil. The drillers, aided in no small part by the development of new drilling technologies, found and produced record amounts of oil and gas. Directional drilling and hydraulic fracturing revolutionized oil and gas production, first in the U.S., now the world’s largest oil producer and exporter. The rest of the world followed.
Bloomberg recently reported, “U.S. shale executives largely backed Trump in the election, but they may take a different view of production prospects. During the past five years, they’ve departed from the ‘drill, baby, drill’ days of the 2010s, when they burned through $350 billion of investor cash and parked two price wars with OPEC that resulted in dozens of bankruptcies.”
Now there is a new “peak oil” mantra. In the fall of 2020, oil giant BP made a forecast that led to shock and dismay around the world. Here’s how Bloomberg described it at the time: “Demand will peak, not supply, with profound implications for the industry and the world at large.”
Global oil supply is expected to exceed demand by an average of 1.2 mb/d next year—a degree of oversupply surpassed only during COVID 19-related shutdowns in 2020 and the 1998 oil price collapse–World Bank
Four years later, a day before this year’s historic U.S. presidential election, Oilprice.com described the state of play in the world’s oil patch: “We’re headed for a historic supply-demand gap in oil markets, the size of which has only been seen twice since the mid-nineteenth century, when the oil industry was born. A report this week from the World Bank has set off alarm bells about a coming oil glut that has the potential to seriously disrupt global economics and trade patterns.”
The World Bank’s October Commody Markets Outlook predicted that “global oil supply is expected to exceed demand by an average of 1.2 mb/d next year—a degree of oversupply surpassed only during COVID 19-related shutdowns in 2020 and the 1998 oil price collapse.”
The online oil industry news service noted, “The scale of this oversupply is difficult to overstate; these numbers have only been exceeded twice in history, in 1998 and 2020. As a result, a barrel of oil could cost less than $60 within the next six years.”
Gasoline prices have been falling since the peak of $5.03/gallon in June 2022, hitting $3.26/gallon in October. There’s a good chance they will fall during 2025, due to overall reduction in demand.
Oilprice.com attributes this to “the confluence of a number of discrete factors including flatlined economic growth in China, climbing electric vehicles sales (which will exceed 23% of new vehicle sales this year, and reach 40 million cars in 2030), increasing use of trucks powered by liquefied natural gas, projected production bumps from non-OPEC+ nations, and persistent overproduction from OPEC+ members as well, who are currently pumping out an extra 7 million barrels per day, ‘almost double the amount on the eve of the pandemic in 2019’ according to a World Bank blog post accompanying the bombshell report.”
–Kennedy Maize
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