OPEC Just Raised Production. Don’t Miss the Real Message.
OPEC’s decision to increase production by 400,000 barrels per day in June is being framed as punishment for “quota cheaters.”
But come on. That’s not what this is really about. We’ve been writing about it since the February “Drill, baby, drill” piece (republished here for new subscribers.
Drill, baby, drill
When Donald Trump invokes “Drill, baby, drill,” it’s not really about opening up U.S. lands for new oil development. The reality is that high-quality drilling inventory in the U.S. is dwindling, and with oil at $70, much of what remains falls into tier 2 or 3 acreage—uneconomical for major operators. Instead, the phrase is a strategic message: oil and n…
This is about pressure. On Russia. On Iran. On net-zero policies. And a not-so-subtle nod to Trump’s desires. The truth is, cheap oil is a blunt-force tool—and Americans see it every day. Trump hopes Powell will too.
Cheap gasoline helps Trump. It’s a tax cut without legislation. It fuels SUV sales, boosts consumer sentiment, and undermines the logic of EV mandates and climate subsidies. It’s a direct shot at Biden’s climate agenda, without an executive order. And it’s the opposite of what the ESG crowd—and European policymakers—want. Which makes Trump extremely happy. It’s good politics. It’s good optics. And it’s consistent with everything Trump has said since 2016.
Want proof?
Here’s a quote from Trump on March 15, 2020, as the world was shutting down, that I posted at the time:
“Oil prices are at a point now that I would’ve dreamed about because gasoline prices are going to be coming way down… That’s like a big tax cut, not a little tax cut, for the consumer.”
Yes, that was four years ago. But the logic still holds. And I wrote about it then.
Here’s an excerpt from a post I published that same week in March 2020. At the time, WTI was plummeting, OPEC and Russia were in an all-out price war, and demand was collapsing thanks to COVID lockdowns. History doesn’t repeat, but it rhymes.
“U.S. producers need to shut-in all recent wells and cut U.S. production to 9 mmbo/d. If we take production offline, U.S. exports would stop and we would remove 20% of the world’s overproduction from the market. Those bbls will be saved by producers to be sold at normal prices when demand returns.”
Back then, we were 140 million barrels away from total U.S. storage capacity. We had room to fill—but not for long. And while Trump wanted to refill the Strategic Petroleum Reserve (SPR), I pointed out a simple truth: Storage doesn’t help producers. It helps traders and the federal government. Unless you control when those barrels hit the market, you’re just handing profit to financial players and locking in losses at the wellhead. And yet again, that’s where we’re headed. And U.S. producers seem to want to be the feedstock selling into a low price environment.
So here’s the question for today: Will U.S. producers finally do what’s necessary—or keep transferring value to everyone else?
Right now, Main Street loves cheap oil. It brings inflation down, can prop up equities, and can give the Fed sometime to point to to justify lowering rates at their next meeting. And, Automakers love it too, and for good or for bad, Trump is very focused on them. The truth? They’re not making money on EVs—they’re still printing cash on F-150s and Silverados. I’ve been writing about cars and the impact of the EV mandate for years, but, Trump signaled it with his executive order in January.
Car makers quietly cheer the elimination of the EV mandate
The Biden Administrations EV mandates designed to push automakers toward a greener future were a bold idea but forgot one tiny detail: markets work best when people actually want what you’re selling. Last week, when Trump rolled the mandates back, he essentially told car companies “Stop building stuff just to check a box. Build what works, make money, a…
On the flip side? Cheap oil doesn’t help producers. Not unless we treat the barrels in the ground as inventory to be sold later—at a profit. Otherwise, we’re just subsidizing the political goals of others: net-zero advocates, debt junkies, and short-term traders.
And if you’re an operator bleeding cash flow and watching your share price crash while you outspend cash flow again? So here we are again. The only question now is whether American oil producers will help themselves. Because this time, we do have demand. We do have pricing power—if we have discipline. And we’ve seen this movie before. I’ve got the receipts.
So producers. Please, for the love of all that is good and holy: do yourselves a favor.
Stop. Completing. Wells.
Midland O&G independent here. Lots office lights were on unusually early this am on the way to work. I maintain that much of the continued drilling into low prices in the first Trump term was at least partially due to continuous development requirements from OGL’s. Now that we are nearing the end of available locations, those cdc’s should have been fulfilled and financially responsible operators will lay rigs down and delay completions. That being said, we as an industry have a history of financial irresponsibility.
We’re about to find out which producers are over leveraged and which ones have the discipline to curtail higher cost production for a undefined period. This will not be great for shale imo or the industry as a whole. I absolutely agree it will have all the positives you outlined.