Carrots, Sticks, and Sledgehammers

Since his second term began on January 20, 2025, President Trump has clearly signaled a desire for lower oil prices. Executive orders, including “Unleashing American Energy,” as well as his remarks to the Davos World Economic Forum audience on January 23, outline Trump’s case for bringing down the price of oil. 

Apart from the obvious direct advantage of reducing costs for consumers and businesses, Trump has associated the benefits of lower energy prices with two strategic priorities: first, as an instrument for taming inflation. Trump believes that a lower energy price environment will pave the way for the Federal Reserve to reduce interest rates and stimulate economic activity. 

Second, Trump has asserted that lower oil prices will hasten an end to the war in Ukraine, ostensibly because Moscow would be deprived of oil export revenues sufficient to sustain its war effort. This reason, however, may have been superseded by recent events, including a February 12 phone call between Trump and Putin, a bilateral meeting of advisors in Riyadh on February 18, and Trump’s February 24 prediction that the war could end within a few weeks.

What Oil Price Does Trump Prefer? 

At an October 21, 2024, campaign rally in Greenville, NC, Trump said of U.S. energy prices, “We’re going to get your prices down so low. We’re going to get them down 50 percent.” This may have included a bit of election campaign hyperbole, seeing as crude oil and gasoline prices that day were $71 per barrel and $3.14 per gallon, respectively, implying targets of $36 per barrel and $1.57 per gallon were the 50 percent reduction applied literally to the price of oil. Moreover, Trump was speaking about energy prices in general, not crude oil and gasoline per se. 

Trump is surely mindful that oil prices were substantially lower during his first administration than those that prevailed both before and after. The price of benchmark US West Texas Intermediate (WTI) crude oil averaged just $58 per barrel during Trump’s first term (excluding 2020).¹ This was $17 (or 24 percent) lower than the $70 per barrel that prevailed during Obama’s second term (2013–16), and $26 (33 percent) lower than the $79 average price during the Biden administration (2021–24). 

During the three-year period from 2017 to 2019, the $58 average price of WTI crude oil coincided with an annual inflation rate of just 2.1 percent and an annual federal funds interest rate of 1.5 percent. It is reasonable, then, to assume Trump favors a WTI price below $60 in hopes of replicating those favorable macroeconomic conditions. 

If $60 constitutes Trump’s upper limit, what about the lower boundary? Here the outlier year of 2020 is instructive, as oil prices apparently fell too low for even Trump’s preferences. 

In March 2020, global oil demand plunged an astounding ten percent as economic activity sharply retreated due to worldwide pandemic shutdowns. At the same time, the Organization of the Petroleum Exporting Countries and allied producers (OPEC+) failed to agree on oil supply targets, effectively ending its March ministerial meeting with a “free for all” that saw Saudi Arabia and Russia ramp up output in a short-lived market share war.

As oil prices nosedived (WTI futures famously fell below $0 for the first time ever on April 20, 2020), US oil companies faced the prospect of severe losses and appealed for political intervention to increase oil prices. Trump is credited with brokering a deal between Riyadh and Moscow to restore production limits; the arrangement stanched the price collapse and paved the way for a rebound. Prices came back to $40 in April 2020 and held there for the rest of the year. 

With the current oil price in the $70 range clearly too high and early 2020s prices below $40 too low, it can be inferred that Trump prefers WTI to range from $40 to $60 per barrel.

Who Can Reduce Oil Prices?

Trump is looking to two sources of potential supply increases in his campaign to drive oil prices lower: the U.S. oil industry and the OPEC+ coalition. He has so far taken very different approaches toward these two audiences: aggressively slashing regulations to incentivize domestic production increases, and publicly castigating OPEC+ for withholding supply from the market.

Unleashing U.S. Energy Resources

Trump’s preliminary executive orders on energy read like a wish list for the U.S. oil patch. Nearly all of the industry’s longstanding policy asks are included: rolling back costly oilfield emission controls, liberalizing permit applications for drilling on federal lands and in offshore waters, a commitment to step up oil and gas lease sales, and reopening the Alaska National Wildlife Refuge to exploration activity. 

But these measures are not likely to move the needle on U.S. oil and gas production anytime soon. The Energy Information Administration (EIA) forecasts U.S. crude oil will grow just 520 thousand barrels per day (kb/d) (4 percent) during the next two years, through 2026. Although this forecast was made before the executive orders were published, there is little sign that the U.S. exploration and production (E&P) industry is eager to exploit the aforementioned opportunities. Companies are not discussing and publicizing plans for significantly expanding E&P activities in Alaska or the Outer Continental Shelf. And if they did pursue new E&P opportunities in these areas, it would be years before new production affected global balances.

If the objective is to return U.S crude oil production to high single-digit percent annual growth as seen in 2022–23, there is cause for pessimism. Those years were outliers unlikely to be repeated, primarily for geological reasons but also because of capital investment constraints.

In 2022, U.S. production was still rebounding from the low levels sustained during the pandemic downturn. The extraordinary 1 million barrel per day (mb/d) (8.6 percent) surge in U.S. oil production in 2023 was a one-off phenomenon that happened largely because privately held drillers drastically increased spending to gussy up their production profiles and enhance their attractiveness as acquisition targets. The capital they invested that year was obtained through windfall earnings from unusually high prices ($80 per barrel average) during the “Russia crisis” year of 2022. 

By late 2023, the windfall profits had been spent, and much of the easy-to-access oil reserves had been exploited. The Permian Basin emerged as the only major remaining growth engine of U.S. supply, with other previously prolific shale plays like North Dakota’s Bakken and South Texas’s Eagle Ford well below their peak output levels. 

With reduced prospects for profitability compared to shale’s heyday in the 2010s, the U.S. oil patch moved toward consolidation, with major deals announced in late 2023 by ExxonMobil to acquire Pioneer Natural Resources and by Chevron to acquire Hess.

E&P Investors Demand Capital Discipline

Trump’s strategy posits that overturning federal government regulations facing the oil and gas industry and expediting drilling permits will incentivize operating companies to surge output. To wit, the “Unleashing” executive order asserts that “burdensome and ideologically motivated regulations have impeded the development of” U.S. energy resources.

This assumption downplays the most important above-ground (non-geological) feature of today’s U.S. oil industry: Wall Street, not government regulation, is the limiting factor for U.S. supply growth. Investor mandates, informed by supply-demand realities, have not allowed E&P companies to “drill baby drill” themselves into a supply overhang and reduced profitability. 

In fact, U.S. E&P companies do not share Trump’s desire for lower oil and gas prices, which would negatively impact their financial performance. A recent survey conducted by the Dallas Branch of the U.S. Federal Reserve Bank found that oil companies are expecting $71 per barrel WTI by the end of 2025 and $74 per barrel by the end of 2026. The branch’s Q1 2024 survey on the breakeven cost of U.S. oil production identified an average $64 per barrel and for some wells as high as $70—well above the $50 range that prevailed during the first Trump administration. 

Were WTI to spend significant time in the $50 range, E&P profits would deteriorate and operators would further reduce capital expenditures on drilling and fracking new wells.

U.S. oil companies are mindful that domestic oil demand growth is barely treading water. EIA sees it slowing to 250 kb/d (1 percent) this year and to virtually zero in 2026.

While ample appetite for U.S. crudes exists overseas, exports are not likely to materially exceed 5.5 mb/d, the current record-high level, unless projections for multiyear trade opportunities lead to investments in building new export facilities.

With limited opportunities to expand crude marketing to domestic and international customers, operators are unlikely to materially increase production—at least according to the conventional playbook.

Changing the Equation

Should Trump’s aggressive deregulation fail to boost supply and lower prices, there are several cards he could play to shake up the status quo.

1. Offer an oil and gas production tax credit. The February 14, 2025, executive order establishing the National Energy Dominance Council obliquely references “incentives to attract and retain private sector energy-production investments.” A production tax credit (PTC) for hydrocarbons could potentially serve as one such novel incentive.
   
   PTCs are an established tool in the energy policy toolkit, used in recent years to boost production of energy from renewable sources like wind and solar projects. Trump could potentially use a new tax credit for traditional hydrocarbons to entice E&P companies to ramp oil and gas output beyond the level justified by supply and demand, as the financial benefit of reducing a company’s tax burden could potentially enable it to maintain expected shareholder returns. 
   
   One possible advantage of an oil and gas PTC would be to incentivize individual company performance over macro oil market stewardship. Presently, companies’ desire to avoid oversupplying the market is well aligned with their shareholders’ interests to distribute free cash flow instead of investing in drilling programs (more than already required by shale’s aggressive decline rates). 
   
   An oil and gas PTC could potentially decouple these elements—an individual company might be willing to overlook the macro supply consequences of ramping up production if the government reduces its tax burden enough to deliver a net financial improvement.
   
   In the short term, this could increase competition among E&P firms to more aggressively market their oil and succeed in driving prices lower. Longer term, however, the laws of supply and demand will prevail, and with more supply offered into a market with limited demand, prices will (all else equal) eventually fall below breakeven prices, causing drillers to reduce output and prices to rebound.
    
2. Aggressively lobby drillers to join the supply-increase bandwagon. While Trump and the oil and gas industry would seem to be the closest of allies, that could change if he comes to see drillers as impeding his economic plans. This was potentially foreshadowed by the Greenville campaign remarks, in which Trump said of oil and gas companies, “If they drill themselves out of business, I don't give a damn.”
   
   Trump has previously berated corporate leaders who failed to comply with his policy prerogatives; the public lambasting of General Motors, Harley-Davidson, and Carrier come to mind, although the track record of success in those campaigns (judged by having nudged those companies into compliance) was mixed at best. 
    
3. Limit or ban oil exports. This option would be highly ironic for the U.S. oil industry that spent much of the last four years concerned that the Biden administration might impose restrictions on exports in an effort to reduce prices. Although the concept was flawed and prone to backfiring, the motivation to bring down high prices was understandable as crude oil had spiked above $120 per barrel and national gasoline pump prices hit $5.10 per gallon in June 2022 following Russia’s invasion of Ukraine.
   
   Throttling or halting U.S. refined product exports would immediately create an overhang of gasoline, diesel, and similar fuels in the U.S. Gulf Coast region, as the transportation modes to distribute those fuels to other parts of the country (pipeline, ship) are limited (which is why international export markets are so important for U.S. refiners and the E&P operators that supply them with crude oil). Refiners would respond by slashing refinery operations, causing producers to cut back on crude oil output. Any domestic fuel price reduction, which would be centered in the Gulf Coast, would therefore be short lived.
   
   A similar dynamic would occur if crude exports were limited or banned. U.S. operators, shellshocked by the cutoff of their international customers that purchase 30 percent (4 mb/d) of total U.S. crude output, would immediately curtail output. In a severe overhang dynamic, some E&P companies would go out of business, manifesting Trump’s aforementioned remark from the October 21 campaign rally.
    

Pressuring OPEC-Plus to Ramp Up Production

In his January 23, 2025, remarks to the audience at Davos, Trump chastised Saudi Arabia and OPEC for failing to increase oil supply and urged it to change course: 

I’m also going to ask Saudi Arabia and OPEC to bring down the cost of oil. You got to bring it down, which, frankly, I’m surprised they didn’t do before the election. That didn’t show a lot of love by them not doing it. I was a little surprised by that. 

But OPEC+ does not want lower oil prices. It has taken a very conservative stance on oil supply for more than two years, deferring an initiative to increase output multiple times since it was first announced in summer 2024 on account of weaker-than-expected demand. Its current plan calls for very small supply increases of about 120 kb/d per month beginning in April 2025 and lasting for 18 months, assuming demand and inventories continue signaling a need for extra volumes. For its part, Saudi Arabia has gone to great lengths to maintain unity within the OPEC+ coalition, and Riyadh has absorbed an outsized sacrifice in market share to hold back supply in support of stable prices.

Trump’s first choice to get more oil from the producer group is probably cutting one or more deals that incentivize Saudi Arabia, Russia, and the UAE to significantly increase output, despite this being adverse to U.S. drillers’ interests and despite the risk of a supply glut developing amid ongoing demand weakness in China. This could involve stepped up arms transactions and defense arrangements in the case of the Gulf states, and potentially even U.S. acquiescence to security terms in Europe that are favorable to Moscow.

If additional oil supplies are not forthcoming, Trump could turn more adversarial toward Saudi Arabia and other OPEC+ members. This could take the form of threats to reduce arms provisions and military cooperation. 

Further up the “escalation ladder” would be moving the longstanding but dormant No Oil Producing and Exporting Cartels Act (“NOPEC”) legislation that characterizes OPEC as a cartel and paves the way for antitrust litigation. The likelihood of reciprocal moves by Saudi Arabia and other members against the United States has loomed over this initiative since its inception and may deter implementation in this case too.

Other Trump Priorities Are at Odds with Lower Prices

While Trump’s signaled desire for lower oil prices is unmistakable, other related policy initiatives are neutral-to-bullish for oil.

• Enacting tougher sanctions on certain exporting countries, particularly Iran but potentially also Russia, Venezuela, and Iraq. New sanctions and stricter enforcement of existing sanctions will remove some barrels from the market and tighten supply-demand balances—a conundrum recently experienced by the outgoing Biden administration. Even the first Trump administration showed leniency on sanctions against Iran with consideration to the inevitable market dynamics.
   
• Filling the Strategic Petroleum Reserve. Trump has declared an intention to fully refill the reserve, which is approximately half full at around 350 million barrels today. There are both budgetary impediments (no money left for new purchases) and policy considerations (more sales are scheduled for 2026–31 as mandated by bipartisan agreement), but Trump can surely overcome these headwinds by lobbying the Republican-controlled Congress. The price effect of removing barrels from the commercial market (available to refineries) and placing them into the reserve would be bullish—working against Trump’s desire for lower prices.
  
  As for setting expectations for a fast refill, the SPR’s “plumbing” is designed for very fast drawdowns (4.1 mb/d) but only slow fill rates. Theoretical fill capacity is 785 kb/d; the real rate is less because of ongoing maintenance and the status of each salt cavern at the four facilities. In round numbers, filling the reserve to its 714-million-barrel authorized maximum would likely take 18–27 months. Reducing or canceling the congressionally mandated sales could expedite the fill rate; if the sales remain on track the full refill would take longer.
   
• Levying tariffs on Mexico and Canada. Trump’s threatened tariffs on energy from Mexico and Canada are slated to take effect on March 4, 2025. Tariffs on oil imports would increase costs for U.S. refiners; these costs will in turn be passed on to businesses and consumers in the form of higher fuel prices. Many economists expect tariffs to raise prices generally in the United States, a headwind in the struggle to tame inflation and a drag on overall GDP. As oil demand turns lower with overall economic activity, oil prices may well follow—but not in a way likely to satisfy Trump and his constituents.
   

Does An Imposed Settlement in Ukraine Reduce Oil Prices?

President Trump’s stance on Russia has changed dramatically during his first month in office. In his remarks to the Davos audience in January, Trump said of oil prices, “If the price came down, the Russia-Ukraine war would end immediately. Right now, the price is high enough that that war will continue.” Trump’s remarks implied that only a substantial reduction in Moscow’s oil revenues would cause Putin sufficient pain to compel him to end the war.

By February 18, Trump had apparently sided with Putin; immediately after his top advisors met their Russian counterparts in Riyadh, Trump blamed Ukraine for initiating the war and chided Kyiv for not cutting a deal to end it sooner. This new stance seems inconsistent with the previously declared need to reduce oil prices to force an end to the war.

The two policies to watch in reaction to the initiatives to force a Ukraine ceasefire are the ban on Russian oil imports and the cap on Russian oil sales, imposed respectively by the European Union and the G7. Unless an arrangement to end the fighting is endorsed by key European powers, both measures are likely to remain in force and maintain the status quo for Russian oil exports: its crude oil headed only to India and China, significant discounts for Russian oil cargoes, and full employment of the shadow fleet and other instruments used to evade the sanctions.

Please consult the PDF for references.

Clayton Seigle is a senior fellow in the Energy Security and Climate Change Program and holds the James R. Schlesinger Chair in Energy and Geopolitics at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

This report is made possible by general support to CSIS. No direct sponsorship contributed to this report.