Trump's 'Drill, Baby, Drill' Era Begins: Oil Prices Tumble, US Energy Stocks Edge Up

Donald Trump wasted no time in his return to the White House, signing a flurry of executive orders, and, most notably, declaring a national energy emergency.

During his inauguration speech on Monday, he reaffirmed his commitment to fossil fuels, pledging to “drill, baby, drill” and revoke the electric vehicle mandate.

“The inflation crisis was caused by massive overspending and escalating energy prices. And that is why today I will also declare a national energy emergency. We will drill, baby, drill,” Trump said.

Trump also announced his intent to withdraw the U.S. from the Paris Climate Accord, calling wind turbines "ugly" and reiterating his policy against renewable energy expansion. His focus is clear: expand drilling, restore the Strategic Petroleum Reserve and flood global markets with U.S. oil and gas.

Oil markets are already reacting, but will this push for American energy dominance send crude prices soaring or lead to an oversupply crisis?

What Happens To Oil Prices?

The immediate impact of Trump's pro-drilling stance on oil markets has been strong, with traders already reassessing their outlooks on crude prices.

The U.S. benchmark West Texas Intermediate crude – as tracked by the United States Oil Fund USO – tumbled by 2.6% during morning trading on Tuesday, heading for a third straight session of losses.

"Mr. Trump's full-throated yell for U.S. producers to: ‘Drill, baby, drill!' is not new. And it's perfectly logical that prices should fall at the prospect of increased supply. But producers are highly price-sensitive, and there comes a time/price where it's uneconomical to raise production," commented David Morrison, senior market analyst at Trade Nation.

“Day 1 executive orders in these areas are expected to be followed by further action in the coming days and weeks, with Trump set to test the limits of presidential authority to pursue an agenda that aims to unravel Biden's energy and climate policies,” wrote Energy Intelligence in a note Tuesday.

David Goldman, head of trading at Novion said Trump's policy shift "is unlikely to have any significant impact in the short term but may have bearish repercussions in the long term."

Goldman highlighted that a sharp increase in U.S. production, particularly if global demand slows due to the ongoing transition to renewable energy, could weigh on prices. "Increased production without sufficient export infrastructure risks bottlenecks, while protectionist trade measures could stifle international cooperation and reduce market efficiency."

Energy Stocks See A Small Lift

Oil and gas stocks saw modest gains in premarket trading Tuesday as investors weighed the potential for increased drilling activity.

The Energy Select Sector SPDR Fund XLE, which tracks major oil companies, was up 0.1% during premarket trading, while the SPDR S&P Oil & Gas Exploration & Production ETF XOP saw similar gains.

Among individual stocks:

Halliburton Company HAL rose 1.67%
Texas Pacific Land Corp. TPL gained 1.04%
Schlumberger Ltd. SLB climbed 1.04% to $44.03
Kinder Morgan Inc. KMI increased 0.96% to $30.60
Baker Hughes Co. BKR moved 0.90% higher to $46.96

Smaller energy players saw sharper moves, with Gulfport Energy Corp. GPOR surging 9.13% to $213.25 and Sable Offshore Corp. SOC jumping 5.20% to $25.77.

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