President-elect Donald Trump will have trouble meeting his pledges to massively increase oil production — even if he manages to overturn President Joe Biden’s sweeping new ban on offshore drilling.
Reluctance by economically skittish petroleum producers, the rise in fuel-efficient cars and Trump’s own threatened trade wars will make it difficult for the United States to produce significantly more oil than it already does, energy analysts told POLITICO on Monday. The fact that the U.S. is already the world’s biggest oil producer and biggest gas exporter will also make sharp increases hard to achieve, despite Trump’s campaign pledges of energy “dominance.”
At the same time, Biden’s new prohibition on oil and gas lease sales in 625 million acres of federal waters is likely destined to be a symbolic action — mostly affecting territory where political pressures or other obstacles have already kept the coastline free from oil rigs.
Trump, who campaigned on cutting U.S. energy prices in half in his first 18 months and ramping up oil output, nonetheless said Monday that he would immediately undo Biden’s action after taking office Jan. 20.
“It’s ridiculous. I’ll unban it immediately,” Trump said in an interview with radio host Hugh Hewitt, hours after the announcement by Biden’s Interior Department. “It’ll be changed on Day One.”
In fact, Trump would face legal obstacles in trying to reverse Biden’s action, and may need Congress to overturn the new prohibition, according to energy experts. And these are the even more daunting obstacles facing his broader pledges for a sharp increase in drilling:
The economics
Trump may be able to lead the oil industry to public lands, but he can’t make it drill.
In addition to undoing Biden’s ban on new drilling projects in federal deep waters, Trump has also pledged to expand the amount of federal land open to drilling rigs, including opening up the long-fought-over Arctic National Wildlife Refuge in Alaska. And he wants to pare back the royalties the Interior Department charges companies to produce oil on public land and fees that the Biden administration increased.
That’s all welcome news as far as oil industry lobbyists are concerned, but it won’t necessarily lead to more oil output, analysts said.
Companies spent years assuring investors that they can produce only as much oil as the market needs without building up debt as they did before the Covid pandemic, so executives at U.S. oil companies and the oil-producing countries in OPEC and its allies are not going to open the spigot unless they see strong demand for it, said Bob Ryan, head of analysis firm Ryan Commodity Insights.
“Oil producers in the U.S. — and in OPEC+ — have finally convinced investors they are not going to increase output if it erodes their profitability or fiscal positions,” Ryan said in an email. “Trump can make the regulatory environment more accommodative to oil producers, but the market will let them know when higher output is needed.”
Oil market analysts at the financial services company Macquarie agreed: “Our 2025 [forecasts] don’t have large U.S. supply growth or OPEC+ returning, and Trump 2.0 is neutral,” they said in a recent market note.
Oil prices have climbed since Thanksgiving but remain lower than they were a year ago — and too low to attract the huge new investments in drilling that Trump is seeking. Forty-two percent of U.S. oil executives responding to a Federal Reserve Bank of Dallas survey last week said their spending on new projects in 2025 would be the same or lower compared with last year, while another 43 percent said it would “increase slightly.”
The culprit? The uncertain picture for oil consumption, largely from China, the world’s new energy hog and the country that has led global oil demand growth in recent years.
Industry executives have said access to domestic oil fields hasn’t been a problem. Most oil and gas production in the United States occurs on private land – most recently in New Mexico and west Texas. Environmental groups have also pointed to the thousands of leases that companies already hold to drill on federal land that they are not using as proof there is no burning need for more public land to drill.
In the end, U.S. oil production could continue the growth it’s seen for most of the past two decades — but it will have more to do with markets than any of Trump’s policies, said Tamas Varga, oil market analyst at PVM Oil Associates.
“The growth in oil production will be determined by market forces, shareholder pressure, [capital expenditures] and oil prices,” Varga said in an email. “Therefore the increase will not be measured in millions of barrels per day but a few 100,000 barrels per day, if that.”
Cleaner vehicles take a bite
Global gasoline demand is expected to peak this year amid growing adoption of electric vehicles and efficiency improvements in gasoline-powered cars and trucks, according to the commodities analysis firm S&P Global. That could keep a lid on the profits oil companies generate from fossil fuel sales.
While Republicans are eyeing cuts to Biden’s electric vehicles incentives in the United States, demand for zero-emissions transportation is booming in China, whose massive market is driving the priorities of the major automakers. That alone figures to weigh on oil demand — especially as China seeks to establish market dominance in the international EV sector.
EV sales are expected to skyrocket in China, hitting a 66 percent market share by 2034 and achieving 89 percent of total sales when combined with hybrid vehicles, according to the consulting firm Wood Mackenzie. That amounts to 8 percent annual growth through 2030 compared with an 11 percent yearly drop for internal combustion engine models.
“Wherever you are, Chinese EVs are coming your way,” Malcolm Forbes-Cable, vice president of upstream and carbon management consulting at Wood Mackenzie, wrote in a recent memo.
That growth is part of the reason the International Energy Agency forecast a leveling off of global oil demand by 2030. It projected renewables, electric vehicles and advances in fuel economy would rein in consumption, pushing global demand to 106 million barrels per day by the end of the decade from 102 million in 2023 — but plateauing after that.
Energy permitting is still a mess
One thing the oil industry and supporters of clean energy agree on is that the federal permitting process needs overhauling. The long approval times and legal obstacles that slow the construction of everything from new pipelines to electric transmission lines mean that projects that could deliver more energy to markets take years to get built — if they succeed at all.
Lawmakers from both parties agree on the need to update permitting rules, so you might think Congress would have fixed the problem in a bipartisan fashion by now. But that’s not the case: Republicans and Democrats failed to strike a compromise agreement in the waning weeks of the Biden administration, worried they were giving the other party too much of what they wanted and receiving too little in return. In the end, the whole process went bust before the holidays.
In two weeks, the GOP will have unified control of government, but the party will keep its focus on a budget bill using a reconciliation process that isn’t suited for major changes to permitting.
Trump’s looming trade war
During Trump’s first term in the White House, trade policy was often a thorn in the side of its energy policy — and for oil producers. Trump’s recent threat of tariffs show there could be a replay of that.
Trump has promised a 25 percent tariff on all products from Canada and Mexico if they fail to stem the flow of migrants or illegal drugs. That penalty would raise the price on the more than 3 million barrels of heavy crude oil a day the two countries send into the United States – a potentially inflationary measure that could erode domestic fuel demand, because U.S. refineries can’t easily replace those barrels of heavy crude with the “light” oil produced domestically.
Tariffs would imperil deliveries of heavy crude from Canada, the top U.S. supplier of the stuff, that would be “exceedingly difficult to replace,” energy consulting firm ClearView Energy Partners wrote in a December note. That would throttle gasoline production by taking key supplies offline, as those heavy crude shipments to complex refineries hover near 3 million barrels per day — accounting for roughly 18 percent of crude inputs for U.S. refineries.
“We understand President Trump’s agenda with respect to tariffs, but we feel strongly that he should consider walling off energy,” said Tom Pyle, president of the conservative think tank Institute for Energy Research, who noted the challenges refiners would face replacing Canadian imports. “I think it’s perfectly appropriate to include Canada as a reliable trading partner.”
Trump is also expected to expand tariffs on imported steel, another major cost for oil companies. The last time Trump raised tariffs on imported steel, it helped knock plans for a gas export project in Alaska off the table.
Trump’s mass deportation plans could also remove workers from a labor pool that the oil industry has already complained is too shallow for its liking. All in all, Trump’s trade and immigration policies could raise prices for companies, which would then pass them along to consumers and weigh on fuel demand.
