During his campaign, President-elect Donald Trump promised to lower the increasing consumer prices that have surged since the pandemic, outlining his strategy with the phrase: Drill, baby, drill.

“Central to our plan for controlling the cost of living will be a forceful effort to end the Biden-Harris administration’s opposition to American energy,” Trump stated at a campaign rally on August 14 in Asheville, North Carolina. “We will drill, baby, drill.”

Reports from last month indicated that Trump plans to expedite the approval process for drilling permits, which averaged 258 days during Biden’s term, increase the frequency of permit sales, and expand drilling activities along the U.S. coastline.

In theory, increasing oil supplies could lower prices for oil and gasoline, which might subsequently decrease transportation costs for groceries and other goods.

But is this strategy effective?

Experts interviewed by YSL News believe it’s unlikely.

“The global oil market dictates the balance between supply and demand,” commented Robert Kauffman, a professor at Boston University who specializes in global oil markets, climate change, and land use. He notes that a substantial increase in U.S. production would likely provoke reactions from other oil producers, leaving crude and gas prices fairly stable.

Here’s a deeper dive into the topic:

What is the current inflation rate?

While annual inflation has decreased to under 3% from a peak of 9.1% in mid-2022, consumer prices still remain approximately 20% higher compared to pre-pandemic levels, driven by increased consumer demand and ongoing supply chain issues.

Public dissatisfaction with high prices during President Joe Biden’s term significantly contributed to Vice President Kamala Harris’s defeat in the presidential election against Trump, as highlighted in a Brookings Institution report.

“I won the election based on grocery prices,” Trump told Kristen Welker during a recent “Meet the Press” interview. “We’re going to substantially reduce those prices.”

Nonetheless, in a Time Magazine interview published Thursday, where Trump was named Person of the Year, he seemed to reconsider his commitment.

“It’s challenging to lower prices once they’ve increased,” he acknowledged. “It’s quite difficult.”

Moreover, many economists assert that Trump’s announced tariffs on imports from Mexico, Canada, and China could worsen price rises rather than alleviate them.

Nevertheless, Trump’s assertion to reduce gas prices represents his primary detailed strategy for tackling inflation. During the Asheville rally, he claimed his administration would “cut energy prices by half within a year.”

He also indicated plans to restart drilling in Alaska’s Arctic National Wildlife Refuge, where Biden revoked Drump’s leases last year due to environmental concerns.

What is causing the decline in US gas prices?

Currently, gas prices have sharply decreased. The price of benchmark U.S. crude oil, West Texas Intermediate, has fallen to about $70 per barrel from $120 in June 2022, right after Russia invaded Ukraine. Consequently, the average price for unleaded gasoline in the U.S. has dropped to around $3 per gallon, down from nearly $5, according to AAA.

Kauffman attributes this decline to record oil production globally, particularly in the U.S., a decrease in energy demand in China and globally due to slower economic growth, and the success of European countries in securing alternative oil supplies after the cutback from Russia.

Is the US the leading oil producer globally?

The United States currently holds the title of the world’s largest crude oil producer, averaging a record 13.6 million barrels a day recently, according to the U.S. Energy Information Administration and the Oil Price Information Service. The nation produced an average of 12.9 million barrels a day in 2023 and has maintained this position ahead of Saudi Arabia and Russia for the past six years, EIA confirms.

Kauffman notes, “U.S. oil production is at its highest ever and has risen during the Biden administration without the expansion of drilling on new lands or waters.”

What does fracking mean in simple words?

The EIA attributes the rise in production to advancements in horizontal drilling and hydraulic fracturing, commonly known as fracking, which employs a mixture of water, sand, and chemicals to extract oil from deep underground, allowing producers to extract more oil using fewer wells over a larger area.

This technique has been particularly effective in regions like the Bakken formation in North Dakota and Montana, as well as the Permian Basin in West Texas and New Mexico.

What happens to oil prices when production increases?

With crude prices currently approaching a three-year low, if the Trump administration were to open up new federal lands or waters for drilling, leading to a surge in oil production, it might not significantly impact the price of crude oil.

To lower both global and U.S. prices, “That would decrease the pace at which companies drill for oil,” stated Kauffman, causing prices to rise again.

Adam Ferrari, the CEO of Phoenix Capital Group, an oil producer operating in North Dakota and Montana, described the current U.S. crude oil price as “a baseline.” The company can remain profitable as long as oil prices exceed about $25 a barrel. However, he noted that the expense of drilling a new well ranges from $45 to $65 a barrel.

Ferrari mentioned that to cover costs and achieve a profit margin of around 15%, “if prices drop any further, we would cease production from new wells.”

Should you invest in oil exploration?

Another important aspect is that oil companies have adopted a more cautious approach toward capital expenditures.

Since the onset of the pandemic, which saw crude prices tumble due to reduced demand, oil producers have transitioned from aggressive spending on new wells to managing existing wells efficiently and delivering solid returns to shareholders, according to analysts.

“This significantly changed their focus,” Rob Thummel, a senior portfolio manager and oil industry specialist at Tortoise Capital, an investment firm said. “They became disciplined with their capital expenditures” and concentrated on enhancing cash flow.

Nevertheless, companies still need to drill new wells to replace depleting ones and satisfy moderately rising global demand. Global crude output, currently at around 102 million barrels a day, is projected to rise by about 1 million barrels per day annually, Thummel noted.

Ferrari highlighted that allowing drilling in new federal lands could be beneficial in the long term if those areas yield more oil per square foot than existing fields, potentially improving efficiency.

However, Thummel pointed out that current fields, particularly the expansive 9,000-square-mile Bakken formation, have ample exploration capacity to meet expected demands and even accommodate a surge in prices without resorting to new federal land availability. Most oil extraction occurs on privately held land, with about a quarter coming from federal territories and waters, as per Thummel and the American Petroleum Institute.

Additionally, he remarked that a sudden spike in prices destabilizing the market would likely trigger an immediate increase in production from the Organization of the Petroleum Exporting Countries (OPEC).

Is the U.S. refining capacity sufficient?

A surge in U.S. oil production influenced by former President Trump would lead to new challenges. Most U.S. refineries, which convert crude oil into gasoline, are designed to process heavier, cheaper crude imported from nations like Canada and Mexico.

This means the U.S. lacks the refining capacity to handle a sudden increase in the lighter sweet crude produced domestically, Ferrari and Thummel explained. Building new refineries or retrofitting existing ones would be necessary, but this could be a costly endeavor.

Heavy crude is thicker and generally less expensive to purchase compared to light sweet crude, but refining it is more complicated and expensive.

This is a primary reason why the U.S. imports around 6.5 million barrels of primarily heavy crude daily, Thummel stated, even though the country seemingly produces enough oil to satisfy its needs. Furthermore, the U.S. exports 4 million barrels of light sweet crude to countries with refineries equipped to process that type.