Donald Trump loves big oil. Does big oil love him back?

DONALD TRUMP likes oil—and oilmen. He gushes about “liquid gold” with as much ferocity as Spindletop, an oil well that spat out perhaps 1m barrels over nine days in 1901 and turned nearby Houston into a boomtown. In his first administration he named Rex Tillerson, former chief executive of ExxonMobil, America’s mightiest hydrocarbon firm, as secretary of state. On February 3rd the Senate blessed Chris Wright, who founded an oil-services firm called Liberty Energy, as head of the Department of Energy. Mr Trump promises that on his watch big oil can “drill, baby, drill” to its heart’s content.

In some ways, the affection is mutual. Oil bosses certainly like the sound of smoother permitting processes and less environmental red tape. This occasionally tied their firms down under Barack Obama and Joe Biden, whose greener-than-thou Democratic administrations bracketed Mr Trump’s first stint in the White House. The industry cannot wait for Mr Trump to reverse his predecessor’s halt on exports of liquefied natural gas (LNG). His plan to rescind fuel-economy standards for cars and pickups could mean more gas-guzzling for longer. And what CEO doesn’t want lower corporate taxes, Mr Trump’s signature promise?

More broadly, the president “will be a super-salesman for American energy”, expects Daniel Yergin, an industry wiseman and vice-chairman of S&P Global, a research firm. As a token of appreciation, Chevron, ExxonMobil’s smaller supermajor rival (which traces some of its roots back to Spindletop), referred to the “Gulf of America”, as Mr Trump has unilaterally rebranded what most still call the Gulf of Mexico, in its latest quarterly-earnings presentation on January 31st.

Those results, like ExxonMobil’s the same day, were disappointing. Chevron’s profits and ExxonMobil’s revenues missed Wall Street forecasts. There is, then, room for improvement under Mr Trump. Yet it is unclear just how appreciative ExxonMobil’s and Chevron’s shareholders will be in four years’ time.

So far they are not exactly cock-a-hoop. The two companies’ combined market value of $754bn is around $50bn less than on the eve of Mr Trump’s election victory three months ago. History is also unencouraging. During his first term in 2017-21 the supermajor duo’s total returns, including dividends, underperformed Brent crude, the global benchmark with which big oil’s fortunes tend to rise and fall. For ExxonMobil that was true even before the market chaos of the covid-19 pandemic. In contrast, returns beat Brent with Democrats in power—handily in Mr Obama’s second term and by an order of magnitude under Mr Biden.

That is not because Democratic anti-carbon rhetoric concealed pro-carbon policies—or vice versa when Mr Trump was last in charge. It is because, as Mr Yergin puts it, the two most important characters in the oil story are supply and demand, over which presidents wield little direct influence. And this time Mr Trump’s other big ideas may have indirect effects that hurt rather than help the American supermajors in the long run.

Big oil is not about to go a-drilling. With crude prices already soft, companies have no incentive to weaken them further by flooding the market. For them, cheaper oil means lower profits. Of the executives at large American producers surveyed last month by the Dallas Federal Reserve, half said that their firms would cut capital spending this year and 14% expected it to remain unchanged from 2024. None forecast a significant increase. Chevron plans to spend a bit less globally than last year, and half as much as it averaged between 2013 and 2016. ExxonMobil will spend a bit more, but only because it is digesting a $60bn takeover in 2024 of Pioneer Natural Resources, a shale-fracking specialist.

This capital discipline has endeared the two firms to investors. They will not forsake it just because Mr Trump has declared open season for prospecting on federal land. Between 2017 and 2020 his government tried to auction off 25m acres, nearly twice as much as in the four previous years and 17 times the figure in the first three years of the Biden administration (those for which data are available). Oil firms bid on less than a quarter of the acreage on offer. Most will be no less discerning this time.

The supermajors will be chary of rushing into Alaska, despite an executive order enjoining them to go wild in the resource-rich north. Big oil firms are serious about self-regulation, says Pete Bowden of Jefferies, an investment bank. The last thing they want is another Exxon Valdez, a tanker which sank and soiled the state’s coast in 1989. This is less about legal liability and more about protecting their global brands, including in places like Europe that abhor Mr Trump’s environmental vandalism and where the firms operate petrol stations. After the election ExxonMobil’s chief, Darren Woods, cautioned Mr Trump against creating more uncertainty, for an industry already grappling with the energy transition, by pulling out of the Paris climate agreement (to no avail).

The crudest of presidents

Then there are Mr Trump’s tariffs. Those on Canadian and Mexican imports were paused at the last minute this week. If they take effect, ExxonMobil and Chevron will bear some of their cost: by making less on the oil they produce in Canada to export back home, and by paying more for the Canadian and Mexican crude they refine in America. They have already taken a hit from retaliation by China, a third Trump target which did not get a reprieve and responded by slapping levies on American oil and LNG.

A full-blown trade war would be worse. Since most oil is traded in dollars, other countries would be able to afford less of it as their currencies weakened against the greenback. As their economies slowed, they would not need as much. That is a recipe for cheap crude—and, for America’s oilmen, a crude, profitless future. ■

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