Drill, Baby, Drill

Donald Trump secured his second term in part on the back of his promise to “drill, baby, drill” and lower every day energy prices for Americans. With his support for the fossil fuel industry, many investors think of Trump as a tailwind for energy stocks. Historical reality has been the opposite as energy performed far better under Biden than Trump.1 Still, drillers prefer Trump and his “drill, baby, drill” promises over Biden’s pledges to transition away from fossil fuels which threaten their existence. In Trump’s second term, he wants to unleash energy production. However, production is already at all-time highs, and oil and gas executives are going to resist rapid growth that has over-supplied the market and burned them in the past.2 In Trump’s second term, energy producers are likely going to prioritize a measured approach to growth while working with Trump on energy infrastructure that can help deliver lower energy prices for Americans.

Source: President Donald Trump at Alro Steel in Potterville, Michigan. Alex Brandon/AP

Oil and gas businesses strongly support Donald Trump over his Democrat counterparts as he favors less regulation and more fossil fuels.1 Oil executives donated over $40mm to Trump in this election cycle, underscoring this support.1 However, this support may not translate to company performance as energy stocks fared much better under Joe Biden than they did under Donald Trump, both in terms of absolute return and in terms of return relative to the rest of the stock market. This underperformance was primarily due to the lack of control that presidents have over the many factors that can drive energy markets, such as the pandemic shutdowns, but was also in part due to the conflicting nature of “drill, baby, drill.”

Energy Stock Performances

Source: Morningstar. October 2024. “Why Oil and Energy Stocks Are Confounding Political Expectations”

The core of Trump’s “drill, baby, drill” promise has two conflicting forces. First, that he will be good for energy companies. Second, that drilling and production will greatly increase, and energy prices will fall. While it is not impossible, it is very hard to both lower energy prices and drive a rally in energy stocks, as evidenced by Trump’s first term.1 Even with this conflict, oil and gas producers still overwhelmingly support Trump because the alternative is clearly worse for them. Joe Biden pushed for 50% of all new US vehicles to be electric by 2030 and Kamala Harris pledged 100% to be electric by 2035.5, 6 While mainstream Democrats threaten the extinction of oil and gas producers, Trump has made his favored types of energy clear.

Trump declared a national energy emergency on his first day in office to incentivize oil and gas production and infrastructure over environmental restrictions, citing national security and economic concerns as the cause.3 The order gives federal agencies emergency powers to fast-track energy projects and facilitate domestic energy development. Oil and gas executives are particularly excited about Trump’s pledge to help build pipelines across state lines which has been a bottleneck for the industry in the past. The lack of pipeline infrastructure has restricted how much natural gas can be moved out of Trump strongholds like Appalachia where prices are low into places like Boston where prices are high. The executive order snubs green energy projects, excluding renewables like solar and wind turbines from his definition of energy. Further, Trump ordered federal agencies to stop issuing permits for new wind projects upon further environmental review and placed a 60-day freeze on many renewable projects on federal lands. However, turning orders into reality can prove difficult.

The past decade reminds us that presidents can only have so much control over the country’s energy. During Trump’s first term he pledged to support “clean, beautiful coal,” but coal consumption fell by over a third as natural gas took market share.3 Further, oil and gas production hit all-time highs under Biden despite his push for renewable energy.

U.S. Field Production of Crude Oil

Source: The New York Times. January 2025. “Oil Companies Embrace Trump, but Not ‘Drill, Baby, Drill’”

With the limited control that presidents have over the country’s energy production, Trump will face resistance to his “drill, baby, drill,” goals. For drilling and fracking to get to the kinds of levels that Trump wants, executives say that prices would have to rise substantially, which is at odds with Trump’s core goal of lowering inflation by reducing energy costs.3 After experiences with overproduction leading to financial losses in the past, US producers are prioritizing stability and shareholder returns over expansion. Drillers have achieved strong operational gains and prefer staying the course to drive sustainable profits that have been rewarded heavily by Wall Street.4 “We're not going to see anybody in 'drill, baby, drill' mode," said ExxonMobil Upstream President Liam Mallon. “A radical change is unlikely because the vast majority, if not everybody, is focused on the economics of what they're doing.” After painful lessons in the past, oil and gas producers are more interested in infrastructure expansion than production growth.

Donald Trump won his second term while promising to to “drill, baby, drill” and lower energy prices for Americans. With his support for energy, many investors think of Trump as a catalyst for oil and gas producers, but producers performed far better under Biden. Still, drillers and frackers prefer Trump and “drill, baby, drill,” opposed to Biden, who has pledged to transition away from fossil fuels. On Trump’s first day of his second term, he declared a national emergency to incentivize oil and gas production and infrastructure while snubbing renewables, again promising to “drill, baby, drill.” Despite these pledges, presidents only hold so much power over energy production in the US. Oil and gas producers have been rewarded for their stable growth and are unlikely to change course with US oil production already at all-time highs. In Trump’s second term, energy producers are likely going to prioritize a measured approach to growth while working with Trump on energy infrastructure that can help deliver the president’s pledge of lower energy prices.

Sources:

1. Morningstar. October 2024. “Why Oil and Energy Stocks Are Confounding Political Expectations”
2. EIA. January 2024. “U.S. Field Production of Crude Oil”
3. The New York Times. January 2025. “Oil Companies Embrace Trump, but Not ‘Drill, Baby, Drill’”
4. Oil Price. November 2024. “Exxon: Don’t Expect ‘Drill, Baby, Drill’ Under Trump”
5. The Guardian, 2021 “Biden Sets Goal For 50% Of New US Vehicles To Be Electric By 2030”
6. American Energy Alliance, July 2024. “Candidate Profile: Kamala Harris on Energy”
7. Trump Zeroes In On Electricity Costs. His Answer: ‘Drill, Baby, Drill’ - NOTUS (Allbritton Journalism Institute)