Trump advocated for reduced gasoline costs and achieved this goal. Now, the oil sector is bearing the consequences.

US Oil and Gas Industry Faces Challenges Amid Record Production

In his recent State of the Union address, President Trump highlighted the nation's robust energy sector, crediting his "Drill, baby, drill" approach for boosting hydrocarbon output and keeping fuel prices low.

One year into Trump's second term, the United States is producing oil and natural gas at near-record levels, with average gasoline prices nationwide staying below $3 per gallon.

However, these achievements have come with significant challenges for the domestic oil and gas sector.

According to a participant in the Dallas Federal Reserve's fourth quarter energy survey, "Our investment choices are guided by capital efficiency and returns. If the economic outlook deteriorates, drilling and completion operations will halt in 2026."

Government data shows that in November, the US produced 13.78 million barrels of oil per day, just below the all-time high set in October. Dry natural gas output also reached a new peak after nine consecutive months of growth.

At the gas station, Americans are benefiting from the lower prices that were a cornerstone of Trump's campaign, with crude oil making up about half the cost of a gallon of gasoline.

Yet, these production records and affordable prices have coincided with a global oil surplus estimated at 2 to 3 million barrels per day, causing crude prices (CL=F, BZ=F) to fall by about 20% through 2025.

Although prices have rebounded somewhat at the start of 2026 due to geopolitical tensions and stronger demand, they remain several dollars per barrel lower than last year. As one Dallas Fed survey respondent put it, "Industry costs continue to rise."

Another industry participant noted, "Falling oil prices are rendering many of our wells unprofitable."

This trend is also evident in the natural gas market, where one survey respondent described the product as "turning into a cost burden for operators."

They added, "Last month, we actually paid our gas buyer to take our gas because market prices dropped below our contract rate. In my five decades in the oilfield, I've never seen this happen before."

Despite increased output, overall activity in the oil and gas sector—including employment and capital expenditures—has declined for three consecutive quarters, according to the Dallas Fed.

These difficulties are not limited to smaller, independent drilling companies that are more vulnerable to price swings.

Major Players and Industry Shifts

Even industry giants like Exxon Mobil (XOM) and Chevron (CVX) have felt the impact. Despite higher production and surpassing revenue forecasts, both companies reported annual profit declines due to the oil glut, which squeezed their margins.

Drilling Rig Platform in Western New Mexico, West Texas, Oil And Gas Industry · grandriver via Getty Images

Another indicator of industry strain is the trend of oilfield service companies like Halliburton (HAL) and Calfrac Well Services (CFWFF) relocating their fracking equipment overseas, where demand is stronger, as reported by Primary Vision and Bloomberg.

The US shale boom of the early 2000s made the country the world's top oil and gas producer, but the sector is now grappling with falling commodity prices. Data from Primary Vision shows that nearly 20% of the fracking equipment in Texas's Permian Basin has been sent abroad.

Halliburton's president and CEO Jeffrey Miller commented during the company's fourth quarter earnings call, "There are incentives to move equipment out of the US, which we are doing in some cases. The US market isn't seeing much new investment in equipment, and as existing equipment wears out, some of it is being relocated overseas."

Looking Ahead: Opportunities and Uncertainties

Despite these headwinds, there are reasons for cautious optimism. The US is approaching the peak driving season, which typically boosts gasoline demand and lifts crude oil prices. Additionally, January's job numbers far exceeded forecasts, signaling robust transportation demand.

The Energy Information Administration expects natural gas production to rise as new pipelines are completed in the Permian Basin, which could lead to higher prices and renewed industry activity.

Nevertheless, the number of active drilling rigs in the US has fallen by about 7% year-over-year, according to Baker Hughes data from late February.

For US oil and gas producers—the core of Trump's "Drill, baby, drill" strategy—increased drilling and lower fuel prices may ultimately put additional pressure on their businesses.

About the Author

Jake Conley reports on breaking news and US equities for Yahoo Finance.

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