dailynewsnblog
During his State of the Union address on Tuesday night, President Trump touted an energy industry strengthened by the success of his “Drill, baby, drill” policy, a dual mandate of more hydrocarbon drilling and lower gas prices.
A year into Trump’s second term, oil and gas production is at or near all-time highs, and gasoline prices average below $3 per gallon nationally.
But for the US oil and gas industry, the president’s ambitions have come at a cost.
“Capital efficiencies and returns drive our investment decisions,” said an oil and gas operator responding to the Dallas Federal Reserve’s fourth quarter energy survey.
“If economic conditions worsen, drilling and completion activities will cease in 2026.”
The US produced 13.78 million barrels per day of oil in November, according to the most recent government data, just barely off the record high recorded in October. Daily dry gas production also hit its highest level on record in November after advancing nine straight months.
At the pump, where crude oil accounts for roughly 50% of the cost of a gallon of gas, Americans are seeing the lower prices Trump campaigned on.
But that record production and those low pump prices have come just as the global oil market has entered a period of deep oversupply of between 2 million and 3 million barrels per day — fundamentals that saw crude oil prices (CL=F, BZ=F) drop roughly 20% through 2025.
Prices are up through the start of 2026, driven by geopolitical factors and an improved demand outlook.
But they remain several dollars per barrel lower than they were a year ago, and as one respondent to the Dallas Fed survey said, “actual industry costs continue in one direction: up.”
“Decreasing oil prices are making many of our firm’s wells noneconomic,” another respondent noted.
The same dynamic is playing out in the natural gas sector, where the energy product is “becoming an expense to operators,” one survey respondent said.
“Last month, we paid our gas purchaser to take our gas because prices fell below contract price, and we paid the difference to the purchaser. Never in my 50 years in the oilfield has this ever happened.”
Activity in the oil and gas sector — which measures a variety of metrics such as employment figures and capex spending — has now declined for three straight quarters, according to the Dallas Fed, even as production has increased.
The effect is not confined to smaller independent oil and gas drilling firms, which are highly exposed to oil price fluctuations.
