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DON'T BANK ON "DRILL, BABY, DRILL"

One the Trump Administration's mantras has been communicating intentions to increase U.S. oil production and bring down prices, which would help ease inflation pressures.

But Austin Pickle, investment strategy analyst at the Wells Fargo Investment Institute (WFII) points out in a note to clients that while the administration can "reduce frictions within the oil industry regarding regulations, permitting, and acreage access, we suspect that U.S. companies will continue exercising capital discipline and will not significantly increase oil production."

Pickle points out that in the December survey of the energy industry by the Federal Reserve Bank of Dallas, only 14% of the roughly 130 oil and gas companies that responded indicated they would significantly increase their capital spending relative to 2024, and not one large exploration and production (E&P) firm selected that option.

In addition, a March 2024 survey by the Dallas Fed stated that $64 per barrel was the average WTI crude CLcv1 price that E&P companies needed to profitably drill a new oil well.

To Pickle, this signals that companies are not planning to spend in order to substantially increase oil production. With the recent string of soft data and the announced plans by OPEC+ to bring back some of its halted production, suggest WTI may fall toward that $64 level, "where companies are more likely to curtail output than to expand it."

Pickle suspects that supply and demand concerns may weigh on oil prices in the immediate term, but are also unlikely to drop significantly below recent lows, while a measured supply response by the U.S. and OPEC+ coupled with an improvement in demand and sentiment will push prices higher by the end of the year.

(Chuck Mikolajczak)

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FOR TUESDAY'S EARLIER LIVE MARKETS POSTS:

THE SPEED OF THE EQUITY DROP SAYS CORRECTION, NOT BEAR MARKET - CLICK HERE

BEFORE AND AFTER: JOLTS VS NFIB - CLICK HERE

ARE EUROPE'S 'DEFENSE SEVEN' THE NEW 'MAGNIFICENT SEVEN'? - CLICK HERE

U.S. STOCKS MIXED, BUT TRYING TO HOLD THE LINE - CLICK HERE

NASDAQ COMPOSITE AND THE SEARCH FOR A TRADABLE LOW - CLICK HERE

"THE WORLD HAS TOO MUCH AMERICA IN ITS PORTFOLIO" - KAIROS - CLICK HERE

RECESSION? WHAT RECESSION? - CLICK HERE

EUROPE MOSTLY HIGHER, DEFENCE LEADS, TRAVEL LAGS - CLICK HERE

EUROPE BEFORE THE BELL: STOCKS SEEN OPENING SLIGHTLY HIGHER - CLICK HERE

TARIFFS TOPPLE STOCKS, NO SIGN OF 'TRUMP PUT' - CLICK HERE