As President Trump began his second term, he proclaimed in his inauguration speech that America would “drill, baby, drill,” promising a boom in drilling and lower prices at the pump.
Nine months in, Trump may only be getting the “lower prices” part.
Production activity in the US oil and gas sector fell throughout the third quarter, according to data released late last month by the Federal Reserve of Dallas, marking the second quarter in a row of contraction in the sector. Oil prices have done much the same.
Oil and gas industry participants interviewed in the Dallas Fed’s survey said conditions are getting worse.
Futures on Brent crude (BZ=F), the global benchmark for oil, are down more than 15.8% on the year, while futures on West Texas Intermediate crude (CL=F), the US benchmark, are down more than 16.8%. The US’s Energy Information Administration only expects that trend to continue, forecasting that US oil production will decline by about 1% in 2026 as oil prices fall, while natural gas (NG=F) production will remain roughly flat.
When prices for crude are high, the going is good for the oil and gas industry. Heightened prices give companies a reason to boost their investments in production equipment and drill more wells because they know they’ll get a good price for their product. When prices fall, the expense of drilling is harder to justify.
“The administration is pushing for $40 per barrel crude oil, and with tariffs on foreign [piping supply used for drilling, input] prices are up, and drilling is going to disappear,” one respondent said in the Dallas Fed’s monthly energy survey.
Part of the problem is an approaching supply glut, keeping prices depressed. Gasoline demand in the US is expected to rise only slightly in 2026. Meanwhile, more electricity consumption is expected to see its largest share of demand met by solar power. Oil consumption has also fallen throughout much of the rest of the world, including Europe, Central Asia, Latin America, and China.
At the same time, the OPEC cartel has approved multiple production rate increases as Saudi Arabia looks to take market share away from the US. Most recently, the cartel announced on Sunday that its member countries will be boosting production by 137,000 barrels per day from November, opting for the same modest monthly increase as in October.
To make matters worse, China, traditionally a driver of demand growth, has been accumulating massive stockpiles of crude oil. In the US, refineries have been running at their highest capacity since June 2022, creating a processing bottleneck and depressing crude prices even further.
Bottom line: President Trump has gotten one part of his wish: Prices at the gas pump are, on average, down. The EIA forecast in early September that retail gasoline prices would average $3.10 per gallon in 2025, down $0.20 per gallon from last year. Prices are expected to fall even more in 2026, down to an average of $2.90 per gallon.
But the other part of the wish is on hold.
The One Big Beautiful Bill, the Trump Administration’s signature policy, should alleviate declining production slightly. The act increases leasing offerings and lowers federal royalty rates, essentially making more land available to oil and gas companies at cheaper prices.
But only 6% of respondents to the survey by the Dallas Fed said they believed the policies would make a significant difference.
“Easing US oil field regulations, the availability of federal lands and the ‘drill baby drill’ mantra from the President do not appear to be bringing a change of strategy to this part of the oil industry,” wrote Guinness Global Investors analysts Jonathan Waghorn and Will Riley in a September strategy note.
The effect is evident in the field. In the Bakken formation, a major oil and gas field that runs through North and South Dakota, Montana, and central Canada, Exxon Mobil (XOM) sold off $550 million worth of the equipment it uses to drill for fossil fuels to a smaller regional company earlier this month, and Chevron (CVX) announced it is going to cut down its rig count from four to three.
Natural gas prices are steadily rising, but the US has been expanding its exports of the product, keeping production largely flat.
Impacts on the oil and gas sector also appear to be rippling out more broadly.
Factory activity in Texas expanded in September, but at a slower rate than in August, according to a Dallas Fed survey. New orders and the growth rate of orders both fell on the month, while prices paid for raw materials increased — though at a slower clip than in August.
“We see the oil industry slowing and are more hesitant to invest in their business,” one respondent, working in machinery manufacturing, said.
Instead of supporting domestic production, a survey respondent said, the Trump administration has aligned itself with the OPEC cartel, attempting to use oversupply to depress prices and in turn hindering fossil fuel producers.
The Energy Information Administration predicts that conditions will continue to worsen. The agency expects Brent crude, currently trading around $68 per barrel, to average $59 per barrel in the fourth quarter and $50 per barrel in early 2026, while inventories build more than 2 million barrels per day over the same period.
“The previous administration vilified the industry, buried it in regulation and cheered the flight of capital under the environmental, social and governance banner,” one respondent to the Dallas Fed survey said. “Now the current administration is finishing the job.”
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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