On Monday, Trump once again shouted a classic slogan from his campaign phase: urging the Department of Energy to 'drill, baby, drill'... However, it is clear that American shale oil drilling companies do not seem to have immediate plans to increase production.
According to multiple media reports on June 24 (editor: Xiaoxiang), President Trump warned American oil producers on Monday that, with the intensification of tensions in the Middle East, he is closely watching the surge in crude oil prices. Trump also reiterated his classic campaign slogan, urging the Department of Energy to 'drill, baby, drill' right now!
However, it is evident that American shale oil companies do not seem to have immediate plans to increase production.
In recent months, these shale companies have faced the dilemma of falling oil prices and have been gradually reducing the number of drilling rigs, sending workers engaged in shale oil extraction home. From the global economic slowdown to tariff pressures, coupled with a new wave of crude oil supply flooding an already saturated market, a series of negative factors are clearly suppressing their willingness to increase oil production.
This scene is apparently not something Trump would be pleased to see. In a social media post made on Monday, Trump stated in his signature all-caps letters, 'Everyone pay attention, keep oil prices down, I am watching! You are helping the enemy, don’t do this!'
But simply shouting slogans may not be enough to change the minds of American shale producers. For months, they have clearly indicated to Trump that the decision to initiate new oil wells is not made by the government but rather by Wall Street and the supply and demand forces in the oil market.
In fact, even though international oil prices surged earlier this month due to the conflict in Iraq, it is evident that no one in the market dares to guarantee that this upward trend will continue. Recent market data also shows that with a significant drop in prices on Monday, oil prices have currently returned to pre-escalation levels of the current geopolitical tension.
Shale oil producers: sometimes it is better to remain silent.
Many oil executives have stated that the current market noise is too loud, and they cannot make hasty decisions—while the imbalance in the fundamentals of the oil market proves the reasonableness of maintaining the status quo.
"It's a bubble," said Steven Pruett, CEO of the Texas-based energy company Elevation Resources, when discussing last week's surge in oil prices (when crude oil prices broke above $73 per barrel).
These executives from crude oil companies pointed out that due to the increased production from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, the supply currently available to consumers may have exceeded demand. This will fundamentally suppress oil prices. These executives generally expect the recent rebound in oil prices to be short-lived.
The oil and gas industry has arguably experienced a roller coaster of price fluctuations over the past few months—WTI Crude Oil in the United States traded at around $73 per barrel at the beginning of the year, dropped to $57 in May, and then surged above $78 last week. Such drastic price volatility is clearly contrary to the relative predictability needed by disciplined shale oil producers to make billion-dollar investment decisions.
What worries many Integrated Oil & Gas companies is the downward risk to the global economy posed by Trump's tariffs. Both the IMF and the World Bank have recently predicted that due to the new round of tariff shocks, the global economy will slow significantly.
Large drillers, including Diamondback Energy and EOG Resources, have stated that they will cut spending this year. According to data from Baker Hughes, as of last week, the number of active rigs in the Permian Basin had fallen to its lowest level since the end of 2021.
Diamondback stated last month that they need to see oil prices consistently above $65 per barrel for the company to expand operations and increase production. Compared to other peers, this company's situation is relatively more favorable—thanks to recent acquisitions, the company holds the deepest inventory of oil wells in the Permian Basin. Other competitors struggling with a lack of quality reservoirs may need higher oil prices to justify ramping up production from remaining wells.
Additionally, many drilling companies are facing pressure from steel and aluminum tariffs—which have further increased drilling costs. Diamondback revealed to investors that in the first quarter, due to the impact of tariffs, its well casing costs rose by more than 10%.
Unless the Strait of Hormuz is blocked.
Analysts point out that a possible situation that could prompt U.S. drilling companies to increase the number of drilling rigs is Iran fulfilling its threat to block the Strait of Hormuz. Many Wall Street investment banks have predicted that blocking this channel, which carries about 20% of global oil transportation, could push oil prices above $100 per barrel.
However, some Industry executives have also stated that even so, those listed drilling companies that adhere to capital discipline may need to experience several weeks of high oil prices before adjusting their drilling plans again.
On the other hand, some private companies may quickly increase drilling rigs to profit from high oil prices. However, since most drilling rigs in the Permian Basin are now controlled by large operators, even if small companies are determined to go all out, they can only marginally increase U.S. oil production.
In addition, even if oil prices are high enough to attract producers, it may still be difficult for companies to completely reverse the current slowdown in drilling and satisfy investors. In recent years, shale oil well output has been declining rapidly, so correcting the downward trend in production means needing to dig into Shareholders' pockets to invest in oil fields.
Ben Bud Brigham, the Executive Director of oilfield logistics service company Atlas Energy Solutions, stated, "As oil prices rise, our Industry may indeed increase the number of drilling rigs and develop more oil wells, but increasing output will still take some time."
