Big Oil’s blowout

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Oil majors that collectively donated more than $75 million to Donald Trump’s re-election campaign are midway through a grisly earnings season. Prices have fallen another $4 this week to below $60 a barrel, after a data release showed that the US economy contracted in the first quarter.

So what? If prices go much lower, companies operating in wide swathes of America’s shale patch would lose money drilling new wells. Big Oil’s full-throated support for the president’s plan to “drill, baby, drill” now appears ill-conceived.

Global glut. Markets are currently pricing a flood of the black stuff due to

• a global trade war denting demand;
• looser drilling restrictions and sustained high production in the US; and
• expectations the Opec+ group of oil producing countries will increase supply.

It could get worse. In the case of a US recession the energy consultancy Rystad forecasts the price of Brent crude will fall to $52 a barrel by the end of the year. This would be below the break-even mark for behemoths such as Chevron and Occidental Petroleum (Oxy).

US consumers may find cause to celebrate; oversupply means low prices at the pump. But oil companies, including those in the Permian basin, where extraction is cheap, are cutting exploration spending, laying off staff and quietly questioning their support for Trump.

Results and regrets. Nearly a year has passed since the infamous Mar-a-Lago meeting at which Trump called on oil executives to donate $1 billion in exchange for environmental rollbacks. Some appear to be experiencing buyer’s remorse.

• Chevron, which donated $2 million to the Trump-Vance inaugural committee, is expected to trim buybacks after it reports earnings today.
• Harold Hamm, chairman of Continental Resources and organiser of the Mar-a-Lago meeting, personally contributed $4.3 million to Trump’s campaign. Recently he’s been speaking out on the need to boost prices over $80 to make drilling viable.
• Vicki Hollub, CEO of Oxy, donated $400,000 directly to Trump. She has seen limited upside: Oxy’s stock price is down more than 20 per cent in the past six months.

Spillover effects. US majors aren’t the only ones in trouble. Most vulnerable among the big five is BP, which this week reported a halving of profits on last year and fired its strategy head under pressure from activist investor Elliott Management. In February BP said every dollar drop in the oil price below $71 wipes roughly $340 million off its profits.

Prince’s prices. Weak oil prices are also putting pressure on Saudi Arabia’s vast spending programme. Prices are far below the $90 per barrel the kingdom needs to balance its books and a “comprehensive review” has been launched of Neom, Mohammed bin Salman’s $1.5 trillion megacity project on the Red Sea. Items already axed or on the chopping block reportedly include:

• tax-free salaries for consultants of up to $900,000 per year;
• projects scaled-back or phased over longer time periods; and
• Nadhmi al-Nasr, the previous chief of Neom, who was abruptly replaced in November after six years at the helm.

What’s more… Trump’s plan to boost oil production and crater prices is just one leg of an economic strategy that is verging on incoherent. His treasury secretary, Scott Bessent, has tried to give it some structure by proposing a “3-3-3” plan that aims to

• grow GDP by 3 per cent a year;
• reduce the US deficit to 3 per cent; and
• increase oil production by an extra 3 million barrels per day.

Experts say it’s looking a lot more like “2-6-0”: growth below 2 per cent (or worse), a deficit of close to 6 (so much for Doge), and, as production flatlines, close to zero extra barrels of oil.