Despite "drill baby drill," oil production seen to drop slightly
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The Energy Department used a classic "Simpsons" meme Saturday to promote "drill, baby, drill" — but new analysis shows the challenge of making it stick outside of Springfield.
The latest: U.S. crude production should drop slightly next year, S&P Global Commodity Insights said Monday.
- The firm also revised its global demand growth estimate down sharply.
Why it matters: The production forecast — in S&P's first such outlook since the April 2 tariff rollout — would be the first year-over-year U.S. decline in roughly a decade aside from the 2020 COVID crisis.
- Yes, the dip it envisions is pretty small and would follow modest growth this year.
- But it's nonetheless a shift at a time when President Trump is vowing to "unleash" U.S. energy.
The intrigue: It's all fluid! Crude prices jumped Monday morning on news U.S. and China will slash their tariffs on each other for 90 days.
- The U.S. benchmark WTI gained 4%, trading around $63.46 per barrel.
The big picture: "A price-driven decline in U.S. production would be a pivot point for the oil market — and set conditions for a potential price recovery," S&P VP Jim Burkhard said in a statement.
- "But much will depend on the severity of an economic slowdown and the impact on demand growth beyond 2025," he said.
State of play: The accelerated increase in OPEC+ barrels and economic headwinds from trade wars are prompting bearish predictions.
- S&P now sees global demand growing 750,000 barrels per day (bpd) this year, down from their prior estimate of 1.25 million.
- Its findings are based on Brent crude averaging in the mid-to-low $60s per barrel for the remainder of this year, with WTI in the $60s or high $50s.
- There's additional risk if trade tensions don't cool and OPEC+ keeps quickly unwinding production curbs.
How it works: S&P sees U.S. crude production averaging 13.46 million bpd this year, about 250k above 2024.
- While shale production is fairly nimble, responses to price changes still have a lag time, and new barrels from offshore wells and other long lead time projects are less price-sensitive, S&P notes.
- But next year it sees output dipping to 13.33 million bpd.
What we're watching: How various analyses shift in months ahead with the never-a-dull-moment changes in trade friction.
- The International Energy Agency's next supply and demand outlook drops Thursday.
