When President Donald Trump assumed office, oil prices surged. The immediate reason was clear: his tough stance on countries like Iran, leading to sanctions on its oil exports. However, another key factor contributing to the price jump is U.S. shale oil production.
Energy market analyst John Kemp recently highlighted the start of a new crude oil cycle, driven by sanctions against Iran, Russia, and Venezuela, as well as growth in U.S. shale production. While traders continue to focus on short-term momentum and demand forecasts from the International Energy Agency (IEA), these reports are often proven inaccurate by later updates.
Kemp referenced data from the U.S. Energy Information Administration (EIA), which revealed that U.S. crude oil production growth slowed significantly in 2024. From January to November, the increase was just 300,000 barrels per day (bpd), down from 900,000 bpd in 2023. While the EIA had already anticipated this slowdown, and industry leaders had hinted at it, the reality has yet to fully register with traders, many of whom are still relying on outdated momentum and reports.
In November, the EIA reported a decline in production of 122,000 bpd from the previous month, dropping from a record 13.314 million bpd in October. This sharp drop was expected, as the high production pace was unsustainable. Additionally, the EIA reported a fall in product supplied by 775,000 bpd for crude oil, pointing to weak demand growth. This suggests oil companies have little incentive to ramp up production.
Trump’s stance on Iran added further fuel to the fire. This week, the U.S. president stated his intention to reduce Iran’s oil exports to zero through a maximum pressure campaign. This move typically drives oil prices up, but a twist followed. Both Trump and Iran signaled a willingness to negotiate before the sanctions were ramped up. Trump emphasized his priority to prevent Iran from becoming a nuclear power but expressed openness to a deal.
In response, an Iranian government spokesman outlined the country’s foreign policy principles, including dignity, wisdom, and interest. Though not a direct indication of readiness to negotiate, the tone suggested a softer approach.
Normally, such signals would be expected to lower oil prices. However, when combined with OPEC‘s recent decision not to increase crude oil supply at Trump’s request, and the slowing U.S. oil production, the outlook becomes more bullish. This sets the stage for a new crude oil cycle, according to Kemp.
Kemp explained that despite the Trump administration’s pro-drilling rhetoric, shale production growth is unlikely to accelerate unless prices consistently rise above $81 to $92 per barrel. Meanwhile, low prices may push the administration to impose stricter sanctions on other oil producers, calling on U.S. shale drillers and Saudi Arabia to fill the void.
However, it’s becoming clear that neither U.S. shale producers nor OPEC will respond as the Trump administration hopes. This mismatch is likely to lead to higher oil prices, driven by a simple equation: declining supply and steady demand. If demand exceeds expectations, the price increase could be even more pronounced.
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