Donald Trump’s return to the White House, with a Republican Congress firmly behind him, ought to help the oil and gas industry. Will it?

Trump himself promised as much. Last April he reportedly told a group of oil executives they should donate $1 billion to his campaign because he would sweep aside problematic environmental rules. And in more open settings, he’s applauded “Drill, Baby, Drill” sentiment.

So, oil executives will probably get the changes they want. But they have other problems, too.

Let’s start with what’s not a problem: oil production.

The US oil industry is producing more oil than ever, far more than even Saudi Arabia. Moreover, among top producers only the US shows recent production growth.

Source: Our World in Data

If the Biden administration wanted to stop or even reduce domestic oil production, it failed miserably. US firms have continued pumping furiously.

They sold that oil at good prices, too, thanks in part to the way Biden’s Strategic Petroleum Reserve purchases effectively set a floor on the crude oil price at around $67 per barrel.

Nevertheless, the oil industry’s market is diminishing.

• The International Energy Agency projects a 1 million barrel per day global surplus in 2025.

• Chinese refinery output dropped 4.6% in October compared to a year earlier.

• Eleven Angolan oil tankers are sailing around looking for buyers.

• Morgan Stanley recently cut its oil price forecast, citing a likely “sizable surplus” next year thanks to reduced consumption.

• Even OPEC has been gradually cutting its oil demand forecasts.

None of this is bullish for oil prices, which means Trump’s oil-friendly policies may not help the industry as much as hoped.

What should worry oil executives, far more than pesky regulations, is having someone to buy their oil. This chart shows oil consumption since 1980 in the 10 largest world economies by GDP.

Source: Our World in Data

Demand growth has been coming mainly from China, which may not continue as the Chinese economy slows. Oil consumption has been generally flat in the US and other large economies. Why?

One reason is we’ve become really good at optimizing everything. Our power-consuming machines—trucks, cars, air conditioners, appliances, computers—work far more efficiently than they used to.

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People talk about EVs reducing gasoline demand, which they do, but the far bigger factor is fuel efficiency. The gas-driven car that used to take you 20 miles per gallon has been replaced with one getting 30 or even 40 mpg. Similarly, your modern heat pump keeps your home comfortable using less power than that old 1980s unit did.

Things like that have helped keep total energy usage stable, more or less, despite population growth.

Those changes are happening everywhere, not just in the US. They would be happening even without renewable energy now adding to supply. But wind and solar are important and getting more so.

This chart shows global energy consumption share by source since 1980. The three main fossil fuels—oil, coal, and natural gas—have lost share but remain dominant.

Source: Our World in Data

But notice those smaller layers at the top. Wind and solar are relatively small… but they’re growing. Oil, coal, and gas are not.

Project the trend forward 10–20 years and it looks like the fossil fuels will keep losing market share, though they’ll still be huge.

The trend could accelerate, too. Renewable energy is a technology, not a resource. That means it can grow quickly.

Solar energy’s main drawback is intermittency—the inability to produce power at night or on cloudy days. This means grid operators still need gas and coal plants available during those periods. But now grid-scale battery farms are filling more of that role.

The battery farms charge up when power is cheap, then sell to the grid at peak demand hours—typically late afternoon in the summer, early morning in the winter. Boosting supply for those short but critical periods makes a giant difference.

Here in Texas, for example, we now have almost 11 gigawatt-hours of battery power storage to stabilize the grid—the same grid that almost collapsed in a 2021 winter storm. (I described my own part in that event here.)

Since then, our grid operator’s battery reserves have grown roughly 50X. Not 50%... they’re 50 times larger now.

Source: Renewable Energy World

Battery technology is improving. Prices are falling. This makes solar production more cost-effective and reliable.

These changes will continue no matter what the Trump administration does. The world is slowly shifting away from oil and gas because renewable energy increasingly makes more economic sense, even without subsidies or government support.

The oil and gas industry will still make good money as AI data centers boost power demand. But their stocks may become less growth-driven and more attractive for their steady income.

“Steady” doesn’t last forever, though. Wells run dry, then you need new ones. Oil and gas companies have to constantly invest in developing new supplies or eventually the income stops.

The sun, however, comes back every morning—a giant advantage that’s slowly but surely replacing fossil fuels. This will continue, no matter what the US government does.

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See you at the top,

Patrick Watson
@PatrickW

P.S. If you like my letters, you’ll love reading Over My Shoulder with serious economic analysis from my global network, at a surprisingly affordable price. Click here to learn more.

• energy
• gas
• oil
• solar