President Trump wants to «drill, baby, drill». His allies in the US oil industry and Saudi Arabia are fighting back.

Trump has been urging the US shale industry to «drill, baby drill» for months, but a new US oil boom is not in the cards anytime soon, no matter how many regulations are rolled back, according to oil executives, writes the Wall Street Journal.

It revolves around fracking. Many producers over-drilled themselves into bankruptcy during fracking’s heyday, and now the industry is focusing on keeping costs down and returning money to investors.

Neither US oil companies nor Saudi Arabia are particularly enthusiastic about Trump’s desire to drive down the price of oil and gas.

OPEC and Saudi Arabia

The president’s advisers admit that US frackers aren’t going to be pumping up much more, calling on Trump to focus on OPEC and Saudi Arabia, the group’s de facto leader, to add more barrels of oil to the market.

But Saudi Arabia is showing little willingness to increase production to push down the price, according to former US officials familiar with the matter. Trump’s team has reportedly been informed of this.

Trump wants lower oil prices to control inflation and pave the way for interest rate cuts. It could also strengthen his hand in upcoming confrontations with petrostates Russia and Iran.

Trump has declared a national «energy crisis» and promised to halve Americans’ overall energy costs. For that, he needs partners.

Russia and Iran

Keith Kellogg, Trump’s special envoy to Ukraine and Russia, has said that global producers should try to lower oil prices to $45 a barrel to pressure Russia to end its war with Ukraine.

But such low prices could be disastrous for US frackers and Saudi Arabia – Trump’s two most powerful friends in the global oil market.

Saudi Arabia will need an oil price of around $90 a barrel this year to balance its budget, according to the International Monetary Fund. Currently, oil prices are around USD 73 a barrel, which is relatively low compared to 2022, when they averaged over USD 94 a barrel.

This makes it difficult to push Saudi Arabia towards a lower oil price. Some experts now expect an emerging conflict between the US and the Arab oil states.

The fracking companies are not a quick fix either, it seems. They prioritise earnings more than growth, for obvious reasons.

– Companies are no longer looking for growth at any cost, says Kaes Van’t Hof, CEO of West Texas oil producer Diamondback Energy.

– Shale oil is in a completely different phase of its lifecycle.

Regulations

In the long term, Trump could make fracking more profitable even with lower oil prices by removing many of the crippling regulations the industry faces, which have only escalated during Biden’s tenure and «The Green New Scam», as Trump calls it.

This job is already underway, but won’t take effect overnight. Among Trump’s early legislative changes, «we don’t see anything that will make a colossal difference to the manufacturing economy,» says Ed Crooks, vice president for the Americas at energy consultancy Wood Mackenzie.

Presumably, Trump will continue his war on regulations, the effects of which will eventually be felt by US manufacturers as well. In the meantime, Trump is left with tough negotiations with Saudi Arabia. One possible bargaining chip is the Gulf state’s inflamed relationship with Iran.

Anyway, Trump faces challenges, but so far that hasn’t seemed to faze the new US president in his second term.