Energy prices continue to be topical for policymakers and consumers, specifically in terms of how the United States (U.S.) can reduce energy costs for Americans. This has been a focus of the Trump Administration, which has repeatedly spoken about “unleashing American energy” and getting oil and gas producers to “drill baby drill.”1 While there are deregulation and drilling expansion policies, such as increasing access to drilling on federal land, that may help boost output from its current levels, it is unlikely that the U.S. will experience the sharp uptick in oil output as seen in Trump’s first term. During the 2017 to 2021 period, West Texas Intermediate (WTI) prices averaged around the mid-50s to low-60s,2 while U.S. oil output rose 17% between 2017-2018 and 21% from 2017-2021, based on the average yearly production.3 In contrast, the Energy Information Administration’s Short-Term Energy Outlook estimates that U.S. oil output will increase only 3% from 2024 to 2025 before growth slows even further to just a 1% increase in output for 2026.4
Further, producers have changed their policies with respect to how cash is spent. As seen in today’s Chart of the Week, shareholder return has dramatically increased, both in absolute terms and as a percentage of capex, from only 50% of capex in 2016, peaking in 2022 to 145% and still well above 100% for 2024. Energy companies struggled as oil prices dropped in mid-2014 through early 2016 after massive capex programs in prior years,5 and investors have rewarded a more disciplined approach to drilling investment, with the S&P 500 Energy Index gaining 136% from 2021 to 2/12/2025 versus declining 49% from 2017 through the start of 2021.6 On the company’s fourth-quarter earnings call, Chevron Chief Executive Officer (CEO) Mike Wirth spoke about this mindset shift, saying, “We've started to bring capital investment down…. And we're headed toward a lower rate of growth. And at some point, you can't grow a position like this infinitely. That was the criticism of the industry last decade, is companies only focused on growing and they never focused on generating free cash flow and returning to shareholders. And that's always been our plan, to do just that.” 7
Although energy policies under the Trump Administration will likely be more favorable, especially in reforming permitting processes and approvals, producers are still signaling their commitment to shareholder return and capital efficiency in drilling programs over increased investment to bring oil prices down. Diamondback Energy’s President Kaes Van’t Hof acknowledged this, saying, “Companies are no longer pursuing growth at all costs. Shale is in a much different phase of its life cycle.”8
Key Takeaway
Oil and gas producers have moved away from periods of overinvestment and significant oil growth in favor of returning cash to shareholders. As a result, most of the large exploration and production companies have introduced capex programs in recent years that fund low- to mid-single-digit growth in oil output versus pursuing maximum growth. With oil prices down significantly from 2022 levels and shareholder preference for a cash return, it is unlikely that companies will be willing to ramp capex spending and oil output, especially in a market that is already oversupplied.
Sources:
1NPR – Trump has declared a ‘national energy emergency.’ What does that mean?; 1/22/2025
2Federal Reserve Bank of St Louis – Crude Oil Prices: West Texas Intermediate (WTI); as of 2/12/25
3U.S. Energy Information Administration – U.S. Field Production of Crude Oil (Thousands Barrels per Day); 1/31/2025
4U.S. Energy Information Administration – Short-Term Energy Outlook; 2/11/2025
5World Bank – What triggered the oil price lunge of 2014-2016 and why it failed to deliver an economic impetus in eight charts; 1/18/2018
6Bloomberg – S&P 500 Energy Index
7Bloomberg – Chevron 4Q24 Earnings Call Transcript; 1/31/2025
8WSJ – U.S. Frackers and Saudi Officials Tell Trump They Won’t Drill More; 2/3/202
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