Oil Drilling Stuck Near 4-Year Lows, Thanks to Energy Policy Puzzle

“Drill, baby, drill” — the pro-oil mantra that the Trump administration rode in on in January — is playing out more like “chill, baby, chill.”

The number of operating US oil and gas rigs held flat at 539 last week, according to Baker Hughes. The figure, seen as a key indicator of future output, is hovering near four-year lows and has fallen by 47 rigs in the past 12 months.

The Rig is Up

The White House essentially rolled out the petroleum-based polyester red carpet for the oil and gas industry this year, cutting regulations, offering up more public land for drilling at slashed royalty rates, ending wind, solar and electric vehicle incentives; and sticking tax giveaways in the GOP’s One Big Beautiful Bill Act. But it takes a world to move oil markets, which ultimately dictate the incentives to drill, and even the might of a US administration ideologically devoted to fossil fuels has struggled to change that. The proof is in the macro.

Oil inventories are set to accumulate at 2.96 million barrels per day next year, pushing the world toward a record supply glut, the International Energy Agency’s (IEA) latest monthly report said last week. Global oil demand is also growing at less than half the rate seen in 2023, the IEA added, while consumption in the world’s second-largest economy, China, is set to peak earlier than expected in 2027. On the supply side, OPEC+, which includes Saudi Arabia and Russia, is set to hike production next month despite warnings from the IEA that it could tip the world into oversupply later this year. And all of this means that the price of oil is under pressure:

• The US crude oil benchmark, West Texas Intermediate, was at $63 on Friday, not far off the $62 four-year low it touched in May. Most oil and gas analysts calculate that the break-even point for newly drilled wells is about $60 per barrel, but that doesn’t factor in elevated tariffs on raw materials like steel and equipment that companies are now facing.
• There are, nevertheless, some signs that future demand could pick up: Wood Mackenzie analysts estimated earlier this year that a slower transition to clean energy, clearly the Trump administration’s preference, could mean the world requires about 5% more oil per year than previously forecast beginning in the mid-2030s. Roughly 100 billion extra barrels of oil and gas, they estimated, would be needed by 2050 to close the resulting gap.

Ultimately, the Trump administration’s desired outcomes have yet to materialize. Oil output is increasing at a slower rate than it did last year. Prices at the pump have changed little since the president’s inauguration. Crude oil exports are falling, including by nearly 12% year-over-year in May, the latest month with available data. The Dallas Fed’s latest quarterly survey of oil industry executives was pessimistic, to say the least, with more than half saying they will probably drill fewer wells this year than they initially planned.

Crude Outlook: The cost equation for US oil firms is also about to get worse: The US Energy Information Administration (EIA) said last week that it expects the per-barrel price of crude to fall below $60 by the end of the year and average close to $50 in 2026. Because of increases in well productivity, the EIA said it still anticipates that American crude output will hit a record 13.6 million barrels per day in December. Afterward, however, it expects US producers “will pull back on drilling and well completion activity” and bring output down to 13.3 million per day.