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An oil pumpjack operates in a field on April 08, 2025, in Nolan, Texas.
President Donald Trump’s trade policies have injected a significant level of unpredictability into the oil market, resulting in volatile fluctuations in crude prices that are unsettling investors and threatening domestic oil production.
U.S. crude oil prices fell to a low of $55.12 on Wednesday, marking a dramatic drop of 23% from the closing figure on April 2, when Trump unveiled his plan to impose tariffs on over 180 countries. This decline poses a serious challenge to Trump’s “drill, baby, drill” initiative, as oil companies may find it difficult to maintain production levels profitably.
However, West Texas Intermediate crude prices rebounded after Trump unexpectedly announced a 90-day moratorium on imposing high tariffs on most nations, excluding China. In reaction to this development, the U.S. benchmark surged 13% from its session low, closing at $62.35.
By reducing tariffs to 10% for the majority of countries, Trump provided a brief relief from escalating trade war fears. Yet, Jim Burkhard, head of oil market research at S&P Global Commodity Insights, noted that oil producers are likely to face a climate of “extreme uncertainty,” prompting them to be cautious with investment projects.
Faltering Confidence
On Thursday, U.S. crude oil dropped over 4% to below $60 a barrel, as market focus shifted to Trump’s decision to escalate tariffs on China to a staggering 125%. The outcome of negotiations with various countries that were granted reprieves remains uncertain.
“While there’s a pause, the underlying uncertainty still exists,” Burkhard commented on Trump’s announcement. “Investor confidence is lower than it was just a month prior, resulting in reduced price levels.”
“Is it feasible for the U.S. to negotiate with 70 countries simultaneously? I believe the turmoil is far from over,” he added.
Trump’s inconsistent approach to tariffs is inflicting real consequences, according to Susan Bell, senior vice president of commodity markets at Rystad Energy. During times of uncertainty, companies involved in asset-heavy industries like oil tend to slash capital expenditures. Bell assessed, “There’s a noticeable decline in confidence not only in shale investments but in U.S. opportunities as a whole.”
Threats to Oil Production
The rise of shale oil enterprises has positioned the U.S. as the leading global producer of crude oil. Current assessments indicate that these companies require U.S. crude prices to consistently hit at least $65 per barrel to maintain profitable drilling operations, as per executives from 81 companies surveyed by the Federal Reserve Bank of Dallas.
The prevailing price of U.S. crude in the low $60s could prompt companies to reduce drilling activities within the next six months, Burkhard predicted. As a result, producers might confront a dilemma of trimming shareholder returns or scaling back operations.
Bell estimated that approximately 50 drilling rigs could be removed from operation shortly, with the risk of even more cuts looming if prices persist at their current levels.
Goldman Sachs has revised its price outlook for West Texas Intermediate to $58 by December 2025, and further to $51 by the subsequent year. If crude prices stabilize in the $50 to $55 range for an extended period, U.S. onshore oil growth could stagnate, said Walt Chancellor, an energy strategist at Macquarie Group.
Moreover, shale producers are also grappling with the consequences of Trump’s steel tariffs, which may elevate the expenses related to new wells by approximately 10%, according to Bell. This would necessitate even higher oil prices to sustain profitable drilling operations, she emphasized.
Burkhard noted that the increased costs associated with steel tariffs compound the challenges faced by companies amidst declining oil prices.
Industry executives voiced their frustration with Trump’s tariff strategy during the Dallas Fed Energy Survey in March. One executive described the prevailing conditions as “chaos” that is detrimental to commodity markets, casting Trump’s “drill, baby, drill” initiative as more of a populist sentiment rather than a feasible strategy. They raised concerns over the unpredictability of tariff policies and called for greater stability.
Another veteran of the industry claimed, “I have never encountered such uncertainty in my extensive career,” referencing the prevailing climate.
U.S. Energy Secretary Chris Wright acknowledged the concerns surrounding declining prices for oil producers. Wright, who established and previously led natural gas fracking company Liberty Energy, contended that Trump could mitigate producers’ costs by clarifying regulations concerning permitting and the approval of pipelines and export terminals, allowing for more efficient production at stable prices.
“Decreased prices benefit consumers, and as producers optimize their cost structures, they’ll thrive even amid lower prices,” Wright explained during an interview. He characterized the current fears surrounding Trump’s tariff strategy as a manifestation of the challenging political climate.
The unpredictable nature of Trump’s tariffs has also adversely affected Liberty Energy’s stock, which has plummeted by 32% since April 2.
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