Risk was off yesterday as both equities and oil lost value. The retreat in the former might be deemed surprising. Credit rating agency S&P Global affirmed its ‘AA+’ rating on US debt, citing elevated tariff revenues, which are expected to offset the fiscal deficit caused by the spending bill. The US Treasury Secretary not only concurred but also predicted higher revenues this year than the originally forecast $300 billion.

There are a few plausible explanations for the correction. One is the announced hike in sectoral tariffs to 50% on more than 400 aluminium and steel products, including foreign wind turbines, cranes, bulldozers, and other heavy equipment. The second is the swift stampede out of tech stocks after a report from the MIT warned of a hype over AI. The sell-off may also have reflected some profit-taking ahead of the central bankers’ meeting at Jackson Hole, where investors hope for greater clarity on the future path of monetary policy.

Meanwhile, the latest series of meetings aimed at brokering peace in Ukraine was also weighed by financial markets, but had a more pronounced impact on oil. Intense talks about ending hostilities, however elusive, raised the spectre of Russia re-entering the international market. That was until overnight, as Russia, based on comments from its foreign minister, appears less than enthusiastic about a meeting with the Ukrainian leader, a prerequisite for any potential peace. The two major crude oil benchmarks fell nearly a dollar. Strength in heating oil stood out, despite the API reporting a build in distillate stocks, while crude and gasoline inventories declined. A possible explanation lies in reports of flaring at the 440,000 bpd Whiting, Indiana refinery due to flooding, which disrupted key units including the primary processing facilities, the heavy distillate catalytic cracker, and the middle distillate hydrotreater, according to Reuters sources.
US Crude Oil Output is Seen Close to the Top
The current US Administration is undeniably fossil fuel–friendly, and its intention to make the country as independent from foreign oil as possible has never been concealed. As part of these policies, the US has withdrawn from the 2015 Paris Climate Accord, declared a “national energy emergency,” rolled back renewable energy initiatives launched by Joe Biden, opened federal lands and waters for drilling, and considerably eased emissions standards. The cost of carbon emission is hidden, but that of retail gasoline is not. Perhaps the most popular campaign pledge, the “Drill, Baby, Drill” mantra, has nonetheless gotten off to a shaky start.

As things stand, US crude oil production is struggling to make significant headway, at least compared with the growth rate observed from the early 2010s, during the onset of the US shale boom. Crude oil output stood at 5.5 mbpd 15 years ago, only to rocket past 13 mbpd by last year, producing an average annual growth rate of 670,000 bpd, omitting the 1 mbpd annual drop in 2020 precipitated by the Covid-19 pandemic. The expansion slowed to less than 300,000 bpd in 2024 and narrowed further to 150,000 bpd through May 2025, the last full month for which EIA data is available. It is worthwhile pointing out that May’s figure of 13.488 mbpd was the highest monthly reading ever. The June-to-date weekly numbers even show a slight contraction compared with May’s average.

The inertia to “step on the accelerator” is evident on several fronts. The weekly Baker Hughes US oil rig counts, considered a harbinger of production, have been on a downward slope for several years. They have plunged from well over 600 to close to 400 since the beginning of 2023. It is a dismal trend, even when efficiency gains are accounted for. The EIA expects US crude oil production to rise from 13.21 mbpd in 2024 to 13.41 mbpd this year, a historic high, only to begin declining and fall to 13.28 mbpd in 2026. Looking further ahead, the picture becomes even more ominous, at least this is what last month’s OPEC World Oil Outlook envisages. US total crude oil production is projected to peak at 13.6 mbpd in 2030 before gradually retreating to 9.6 mbpd by 2050, with shale output plummeting from 9.7 mbpd to 7.8 mbpd over the same period.

Back to the present, the Trump Administration’s aim of increasing oil production by 3 mbpd during the current term is met with a healthy dose of scepticism by US oil executives, according to the latest Dallas Fed survey. They are concerned that the planned and already implemented import tariffs will raise the cost of drilling and completing new wells. They estimate that with WTI at $60/bbl, oil production will slightly decrease between June 2025 and June 2026.

These are grim prospects, making the US plan to significantly raise oil production appear unrealistic. Any potential need for more supply will therefore have to be met elsewhere. As pointed out in the Financial Times, international oil companies have all emphasised in their recent earnings calls their renewed focus on exploration and production, as the transition to renewables slows significantly. According to Wood Mackenzie, this will result in an additional 5% increase in oil demand from the mid-2030s onward, compared with forecasts made a few years ago. In other words, the race is on to satisfy this increased consumption. What seems certain is that OPEC and other producers outside the alliance will attempt to fill this gap, with the notable exception of the US. Yet, this observation could easily prove inaccurate if, due to a medium-term supply shortage, US producers are once again financially incentivised to become more active.

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