Wall Street challenges Trump and Oil Boom Dream faces reality

Even with Trump’s support for deregulation and fossil fuels, Wall Street and low oil prices maintain the schist sector at a cautious rhythm

Donald Trump’s call for a new oil boom will be frustrated by Wall Street’s reluctance to approve another wave of perforations, warned shale sector executives.

Total US oil production in Trump’s second term will increase less than 1.3 million barrels per day, according to Rystad Energy and Wood Mackenzie, well below the 1.9 million barrels per day reached under Joe Biden let alone in the years of shale bonanza in the past decade.

According to the Financial Times, executives said that the pressure of investors about companies and the economic realities of an sector always dependent on oil prices will be obstacles to the search for Trump to launch an era of “American energy dominion.”

“The incentive, if there is, to simply drill, drill, drill … I just don’t believe companies will do it,” said Wil Vanloh, CEO of Private Equity Quantum Energy Partners, one of the largest investors in the schist industry .

“Wall Street will dictate the rules here – and do you know something? They do not have a political agenda. They have a financial agenda… They have no incentive to basically tell management teams to run these businesses to drill more wells, ”added Vanloh.

The reality in the field can be a disappointment for Trump, which bets that a big leap in oil supply can combat inflation in the US, making goods and fuels cheaper.

“We will reduce prices … We will be a rich nation again, and it is liquid gold under our feet that will help to do this,” said the president in his inauguration speech on Monday.

In Davos, on Thursday, he also asked the Opec cartel to reduce oil prices, suggesting that this would allow central banks to cut interest rates around the world “immediately.”

But lower oil and gas prices would make schist companies less profitable – and less likely to follow Trump’s order to “pierce, pierce, drill,” warned executives.

“Prices will be a stronger signal than politics,” said Ben Dell, a managing partner of Kimmeridge, an energy investment company that has shale assets, including the Permian basin, Texas, the most productive oil field from the world.

After US oil production reaches a record last year, the management of energy information (EIA) expects production to grow only 2.6% to 13.6 million barrels per day by 2025, before rising less than 1% in 2026 due to pressures on prices.

Some shale producers are also concerned that the best places have already been explored after more than a decade of accelerated exploration in states such as Texas and Northern Dakota.

After his inauguration ceremony this week, Trump signed executive orders to “release” new oil and gas supplies and declare a “national energy emergency”. He also acted to eliminate Biden era regulations that, according to drilling companies, increased their costs and restricted the activity.

But executives warned that even Trump’s emphatic support for fossil fuels and deregulation may have a limited impact.

“As much as the new administration is very favorable to energy… We don’t see a significant change in the levels of activity in the future,” said David Schorlemer, Director of Propetro, a Petrolyfed Field Service Company at Permian.

Producers’ reluctance appears after two decades of accelerated growth – and sometimes brutal volatility in oil prices.

US oil and gas production has exploded over the past 15 years as drilling companies have found ways to explore vast deposits trapped in shale rocks. Wall Street funded a unbridled race that made the US the largest oil and gas producer in the world.

But brutal prices in 2014 and 2020 caused a wave of bankruptcy, a more cautious investor approach and a change in producers’ behavior – especially in the face of lower oil prices.

A recent search from the Federal Reserve of Kansas City found that the average price of oil needed for a substantial increase in drilling was $ 84 per barrel compared to about $ 74 per barrel today.

JPMorgan predicts that US oil prices will fall to $ 64 per barrel by the end of this year and that the activity in the shale will “dramatically slow” by 2026.

“If prices are weak, you can remove all the bureaucracy you want. This will not change production, ”said Hassan Eltorie, S&P Global Commodity Insights Research and Transaction Research Director.

Chevron, the second largest US oil producer and a large schist investor, plans to reduce spending this year for the first time since the pandemic oil drop, with a budget of $ 14.5 billion to $ 15.5 billion For 2025, below $ 15.5 billion to $ 16.5 billion from last year. Exxon, by comparison, will increase its capital spending in the coming years.

CONCOCOPHILLIPS expects to reduce spending by $ 500 million from last year, while Occidental Petroleum and EOG Resources will maintain virtually stable activity levels – decisions designed to please Wall Street.

“The shareholders of these energy companies… if you do more [gastos de capital] From what they would allow, they will shout and sell their shares, ”said Cole Smead, CEO of Smead Capital Management, which invests in some oil companies, including Chevron and Occidental Petroleum.