Oil prices declined for the second consecutive day on Tuesday, with experts linking the drop to the negative impact of President Trump’s “Drill, Baby, Drill” policy. On Monday, Trump signed an executive order reversing restrictions on oil drilling in the Arctic and along U.S. coasts, as well as a 2023 memo that blocked drilling on 16 million acres in the Arctic. However, oil executives remain cautious about increasing production.
A recent survey by Baker Hughes revealed a sharp drop in U.S. oil drilling, now just one rig above its post-pandemic lows. The number of active drilling rigs fell by two last week, reaching 478. This is 149 rigs below the post-pandemic peak in November 2022 and 73 rigs lower than the number when Trump took office in 2017.
For over two years, drilling activity has been on a steady decline, with companies adopting more conservative strategies. Productivity gains have allowed for output growth despite fewer active rigs. Experts at Standard Chartered predict that drilling will stay subdued through 2025, as current oil prices remain too low to justify expansion amid rising costs.
Oil companies’ falling profits are also likely to limit efforts to ramp up production. Two years ago, the Biden administration urged U.S. companies to increase production to reduce fuel prices when oil was around $100 per barrel and companies were making record profits. However, last year, non-OPEC+ supply growth slowed significantly, from 2.46 million barrels per day (mb/d) in 2023 to 0.79 mb/d in 2024. This slowdown is mainly due to low oil prices discouraging more drilling. StanChart expects U.S. oil production growth to remain weak, with just 367,000 barrels per day (kb/d) in 2025, before falling further to 151,000 kb/d by 2026.
In response to falling oil prices, companies have been borrowing more money to fund shareholder dividends and stock buybacks. Bloomberg reported that four of the world’s five largest oil companies borrowed $15 billion between July and September to finance these buybacks. With oil prices declining, these companies are struggling to meet investor demands for returns, while also limiting their spending on new drilling projects.
Changing Market Dynamics
Beyond low prices, U.S. oil production faces several structural challenges, especially in the shale industry. Commodity experts at Standard Chartered note that U.S. crude production hit an all-time high of 13.4 million barrels per day in August 2024, surpassing the previous record of 13.31 million barrels in December 2023. While U.S. production has grown by 4.7 million barrels per day since the pandemic low in 2020, it’s only slightly above the pre-pandemic high of 13 million barrels in 2019.
U.S. shale oil production, in particular, has struggled to maintain growth due to changing market dynamics. Unlike OPEC countries with national oil companies, U.S. oil production is dominated by a mix of major companies, independents, and private firms. These companies have shifted away from aggressive drilling and focused more on returning profits to shareholders through dividends and stock buybacks. Additionally, mergers and acquisitions have reduced the number of smaller producers, allowing larger companies to optimize drilling through more efficient methods, including multi-pad wells.
These efficiency gains have helped maintain production levels despite a declining rig count. According to Goldman Sachs, technological advances have been the key driver of growth in the Permian Basin since 2020, although the bank warned that the basin is nearing maturity. The Permian’s rig count has dropped by 15% since April 2024, and Goldman Sachs predicts it will fall below 300 rigs by the end of 2025, a sharp decline from previous years.
In summary, while President Trump’s push for increased oil production has led to regulatory changes, the reality is that U.S. oil companies face significant challenges, including low prices, rising costs, and a shift toward shareholder returns. These factors are likely to continue restraining the growth of U.S. oil production in the near future.
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