The red flag raised on Wednesday, the sticky US inflation that is as the tariff impact started to be felt, was long forgotten by yesterday. Investors’ focus shifted towards the latest set of economic data, and it was, by any standard, sanguine. Consumers were more than willing to spend, as mirrored in last month’s retail sales figures, which, to a certain extent, should not come as a surprise since the labour market appears solid. Retail sales increased 0.6%, beating forecasts of 0.1%. Initial claims for unemployment benefits descended to a seasonally adjusted 221,000, a fall of 7,000. When attractive earnings are added to the equation, equities have only one way to go, and the Nasdaq Composite Index logged its sixth record high settlement in the last seven trading sessions.

Upbeat stocks, more often than not, are seen as supportive for oil, not that it needed any encouragement. Four days of drone attacks on oil fields in the Kurdish part of Iraq are bound to take their toll as the region’s output has been slashed from 280,000 bpd to around 130,000 bpd. When Middle East production is adversely affected, it is the middle of the barrel where the impact is most keenly felt. No wonder then that both the CME Heating Oil and the ICE Gasoil contracts were the pacesetters behind yesterday’s rally, also aided by considerable drawdowns in NWE and Singapore gasoil inventories. In the same way as the US consumer price increase is temporarily ignored in financial markets, the determined OPEC+ production rise and the weekly swelling of US commercial oil inventories have gone unnoticed in our neck of the woods. Short-term bullish factors, nonetheless, do not make them go away.

US Fans of Fossil Fuels Will Remain Disappointed

The animosity of the incumbent U.S. administration toward anything containing the words “renew” and “ables” is well publicised. Acrimonious rhetoric against alternative energy and its advocates resurfaces regularly. One example of this persistent and staunch opposition was on display this week. Pressure has increased on the International Energy Agency (IEA), the energy watchdog of oil consumers (yes, that includes the U.S.) and the anti-Christ of OPEC, the understandable advocate of oil use. The U.S. is demanding that the Agency shift its focus from advocating climate change to providing “objective” demand forecasting. This is obviously an oxymoron, we all know what it means: fall in line, support fossil fuels, or face the possible consequences of U.S. withdrawal from membership and funding.

The administration’s support for fossil fuels is omnipresent. In its latest budget, it removes clean energy incentives, eliminates the electric vehicle mandate, and champions fossil fuel consumption with the ultimate promise of lowering energy costs for American families. As for our market, President Trump pledged during his pre-election campaign to help U.S. oil production grow by 3 million barrels per day. It is a target incompatible with his ambition to lower oil prices. Recently released data suggest that beyond the deafening narrative, the government has limited practical means to meaningfully support U.S. producers in their quest to “drill, baby, drill.” In the end, market forces will be the ultimate arbiter of U.S. crude oil production levels.

The highest-frequency data available, weekly production estimates from the EIA, reveal significant headwinds to the promised production growth. While the year-to-date weekly average of 13.46 mbpd is an annual record, the pace of growth has slowed considerably. The increase is less than 200,000 bpd from 2024, compared to gains of around 600,000 bpd in both 2023 and 2022. If another data set, the Baker Hughes rig count, widely regarded as a faithful harbinger of U.S. output changes, is accurate, then the outlook for production growth remains tepid. The latest count of 424 is the lowest since September 2021 and well below the post-COVID peak of 627 and this year’s summit of 489.

The July edition of the Short-Term Energy Outlook, published by the statistical arm of the Department of Energy, echoes this sentiment. While it projects 2025 production to rise by 160,000 bpd, from 13.21 mbpd to a new record of 13.37 mbpd, it expects production to plateau in 2026. Sluggish U.S. output growth is also visible through 2050, as outlined in OPEC’s World Oil Outlook 2025. According to that report, long-term U.S. liquids supply will peak in 2030, only 1.3 mbpd above 2024 levels, and then decline to 19.6 mbpd by 2050. Tight oil supply is also expected to reach its zenith in 2030 at 16.5 mbpd, 1.8 mbpd above last year’s figure and a far cry from the promised 3 mbpd increase.

Data, statistics, and projections are all useful tools in painting a picture of the U.S. production outlook. However, the views and opinions of those intimately and directly involved in the sector are equally, if not more, salient. Circling back to short-term prospects, the quarterly Dallas Fed Energy Survey lays bare the challenges U.S. producers face in one of the world’s most prolific oil-producing regions. The number of wells that E&P firms plan to drill in 2025 has remained broadly unchanged since the beginning of the year. While most respondents say the recent rise in steel tariffs will not affect drilling activity, they report that the cost of drilling and completing new wells has increased by 4% to 6% due to the import tax. According to executives, production would decline slightly at $60/bbl basis WTI and significantly at $50/bbl.

In the survey’s comment section, participants reiterated their long-held belief that the administration’s chaotic tariff regime has harmed the domestic energy sector. A $50/bbl target is deemed unsustainable, and the prevailing view is that prices in the mid-$60s are necessary to maintain output. Most shale executives expect the WTI price to remain below $68/bbl over the next six months, around $5/bbl above what the current futures curve suggests.

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