Is there, as the new American administration claims, a “national energy emergency“? Are the fetters about to come off the US fossil fuel sector and a new era of booming production commence, as per Donald Trump’s executive order?
In short, no.
Under the allegedly disastrous Biden administration, the average price of Brent crude oil, forecast to be US$81 a barrel across 2024, instead fell to US$75, with gasoline prices falling again in 2024 after falling substantially in 2023 (not that voters gave Biden any credit).
And for all the cries of “drill, baby, drill”, US oil production — the US is now the world’s leading oil producer — escalated in 2024 and was already predicted to rise further in 2025 (something Trump will presumably take credit for).
Output from the Permian Basin areas in Texas and New Mexico has risen over the past five years, boosting US output to a record 13.5 million barrels a day in October, beating the previous historical high of 13 million barrels in late 2019 (the pandemic saw output fall to 9.7 million barrels four months later as a plunge in demand sent prices to negative levels in April 2020).
The Russian invasion of Ukraine in February 2022 helped boost US production by increasing demand for oil and gas (LNG) as Russian supplies were shut out of global markets. Prices surged to $US120 a barrel later that year.
The new regime in Washington is now effectively saying to oil companies that they should be tapping and exporting even more oil. The CEOs of Exxon Mobil and Chevron (America’s two biggest oil producers) aren’t on board.
“There’s still some upside,” Chevron CEO Mike Wirth told CNBC in a January 8 interview. “But probably not growth at the rate that we’ve seen over the last number of years as particularly some of these new shale plays begin to mature.”
Exxon CEO Darren Woods was blunter last November, making the politically incorrect statement to CNBC that US shale production has not faced “external restrictions” under the Biden administration.
“Certainly we wouldn’t see a change based on a political change but more on an economic environment. I don’t think there’s anybody out there that’s developing a business strategy to respond to a political agenda.”
That the new president is now calling for lower oil prices globally will further reduce any incentives for increased production.
Woods and Wirth know that, since 2022, investors of all sizes have been hounding US oil and gas companies not to “drill, baby, drill”, but to cut costs to boost profits and share prices. Investors only care about profits and share price gains — not energy dominance, higher production or political bragging rights. The share prices of both companies have marked time since their 2022 highs, while the broader US share market has increased by 60-70% and the Nasdaq nearly doubled.
And then there’s the tariffs: after extensive threats and bluster, Mad King Donald failed to honour his commitment to implement punitive tariffs on “day one”, but is now threatening to impose 25% tariffs on Canada and Mexico from February 1. Canada is the biggest energy supplier to the US, with 4.3 million of the 20.3 million barrels of oil consumed daily in the US in 2023 coming from up north.
Nor do things look good for coal in America. World thermal coal prices have slumped to around $US116 a tonne on the Newcastle spot market (for higher quality 6,000+ kilocalorie) and to less than $US80 a tonne for lower quality coal (around 5,000 kilocalories) — effectively giving up all of the Ukraine war price spike. There’ll be further downward pressure on the coal price if significant new gas deposits are opened up, as the new administration wants.
The share price of America’s biggest coal company Peabody — which has gone broke and been rescued in the past five years — has declined by more than 40% since the US election (too bad for all the Appalachian Trump voters). Late last year Peabody committed to pay nearly $US4 billion to buy four (mostly coking) coal mines in Queensland rather than invest further in the US home markets.
But even coking coal prices (for premium Australian product) are down 5% or more in the past 10 weeks too — because the Chinese steel industry is floundering. Those promised tariffs and their impact on the global economy will knock on to prices of commodities like coal, oil and LNG. It might be bad for growth and employment around the world — but it’ll sure get energy prices down.
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