The evolution of the oil industry from Bush to Biden

One of the most popular articles I’ve ever written is Average Gasoline Prices Under Last Four Presidents. It has been used by people across the political spectrum to make various points.

Republicans often cite it to show that gas prices were lower under Donald Trump compared to Barack Obama or Joe Biden. Democrats, on the other hand, point out that Trump inherited low prices from Obama and that those prices have risen for two consecutive years under Trump.

Both points are valid, but the larger context discussed in the article is often overlooked. The graphic in that piece acts like a Rorschach test, where people often only see what supports their point of view.

I anticipate a similar reaction to today’s article, which examines claims about which presidents have been most favorable to oil drilling. Using data from Baker Hughes Rig Countwe created a chart showing the average number of oil rigs each year during the last four presidents. Republican presidents are marked in red and Democrats in blue.

Average number of oil rigs 2001-2024. Robert Rapier

The data alone might lead some to the misleading conclusion that President George W. Bush, often seen as pro-oil, was bad for drilling. Meanwhile, President Obama, who was not exactly known as a friend of the oil industry, was by far the best of these presidents when it came to drilling. However, this data needs context.

If you were to superimpose oil prices on this data, it would show that higher oil prices usually lead to increased drilling. However, the story is not only about prices, but also about technological advances.

Today, oil companies can extract far more oil per rig than they could in 2001. Even though the rig count has fallen sharply since its peak under Obama, US oil production has continued to set records year after year. Last year saw the highest oil production in US history and we are on pace to hit it this year.

In the decade before Bush became president, oil prices averaged about $20 a barrel. US oil production has been falling for 30 years. This was the environment for oil companies in 2001.

The rig count during President George W. Bush’s tenure was influenced by factors such as steadily increasing oil demand from China and a slow response from Saudi Arabia to increase production, leading to fears of shortages and eventually then, to an oil price bubble.

That bubble burst in 2008 with a recession, causing a drop in global oil demand. As a result, drilling activity fell sharply in President Obama’s first year, although that decline had more to do with the recession and the collapse of oil prices than a change in administration.

During the Obama presidency, oil prices initially rose as the economy recovered, driven by the same factors that pushed prices higher under Bush. However, technological innovations such as hydraulic fracturing and horizontal drilling have begun to reverse the long decline in US oil production and would eventually force OPEC to react.

Oil prices averaged close to $100 a barrel between 2011 and 2014, leading to record drilling activity. But Saudi Arabia initiated a price war in late 2014 to regain market share lost to US shale oil.

That price war – which I called OPEC’s Trillion Dollar Miscalculation — Eventually, oil prices fell below $30 a barrel. Gasoline prices also fell sharply during that time. In response to low prices, the number of rigs declined during Obama’s last two years.

Under President Trump, oil prices rose in the first two years, reaching $65 a barrel in 2018 (source). The number of rigs followed the increase in oil prices. However, the 2020 COVID-19 pandemic has crushed oil prices globally, causing the rig count to plummet to its lowest level since 2009.

The price of oil would recover sharply in 2021, and then in 2022 it will rise above $100 for the first time since 2014. Several factors have driven the price of oil higher. First, some American manufacturing was lost during the collapse of the pandemic. Some manufacturers went bankrupt and others permanently closed marginal production. Second, OPEC – at the request of President Trump – drastically cut production in 2020.

When the economy started to recover strongly, the loss of output from US producers and lower output from OPEC helped to push prices higher. Russia’s invasion of Ukraine was the final catalyst that sent oil prices back over $100.

Although the number of platforms has rebounded under President Biden from the lows of the pandemic, it remains lower than in previous years. Biden’s administration averaged 500 platforms, compared to 666 under Trump and 909 under Obama. Despite this, average oil production under Biden was 12.2 million barrels per day (BPD), compared to 11.0 million BPD under Trump and 7.2 million BPD under Obama.

This discrepancy highlights that the rig count is a poor short-term predictor of oil production, as it reflects a complex interplay of oil prices, technological advances and the evolving strategies of oil companies focused on fiscal discipline.

In conclusion, interpreting platform count data without considering the broader context can lead to misleading conclusions. The rig count data is part of a larger puzzle that includes oil prices, technological development and a shift in strategies by oil companies determined to demonstrate more fiscal discipline.

Understanding these factors is crucial to accurately assessing the impact of various presidential administrations on the oil industry.

Of Robert Rapier

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