The optimism of early 2025 has given way to uncertainty in the oil and gas sector as concern grows about weakening oil demand following President Donald Trump’s tariff policies and planned supply increases from OPEC+ in May, Wood Mackenzie said in an April 23 report.
The energy intelligence provider now expects global upstream development spending to fall year-over-year for the first time since 2020.
“The global oil industry is bracing for a crisis,” said Fraser McKay, head of upstream analysis at Wood Mackenzie. The upstream supply chain is bracing for impact, WoodMac said, reporting that in the U.S., “tariffs could increase costs by up to 4% onshore and up to 14% offshore.”
The shift began on April 2, when Trump announced sweeping tariffs affecting almost every country in the world. The tariff war between China and the U.S. escalated further, stopping with U.S. tariffs at 145% and Chinese tariffs at 125%.
Crude futures sank on April 3, falling 6.4% to $66.95/bbl. They’ve since dropped below $60/bbl and rebounded to trade near $62/bbl this week.
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Energy Sector Braces for Impact from Tariffs
OPEC+ may add to the uncertainty. Reuters reported that several members want to again increase production in June.
“In recent weeks, tariff announcements and a more aggressive OPEC+ production strategy have sent ripples across the energy sector,” said Liberty Energy CEO Ron Gusek during the company’s first-quarter earnings call.
Other oilfield services providers have expressed similar sentiments on tariff impacts during earnings calls in the past week, saying that for now they're keeping a close eye on the situation.
“The last three weeks have been highly dynamic as the trade environment injected uncertainty into markets, raised broad economic concerns, and along with faster-than-expected the return of OPEC production, weighed on commodity prices,” said Halliburton CEO Jeff Miller.
Baker Hughes CEO Lorenzo Simonelli urged that the U.S.’ ongoing trade negotiations and uncertainty regarding the eventual status of tariff rates and other trade policies across key markets introduce “a high degree of variability.”
Some operators anticipate the nation’s trade dynamics will deteriorate, taking a turn for the worse.
“Recent U.S. tariffs, along with retaliatory tariffs, have added significant uncertainty in the market, which if unresolved will very likely cause demand destruction in the short to medium term,” said Weatherford International CEO Girish Saligram.
On the natural gas side of the equation, Range Resources leaders said the company is well-positioned for the ongoing political conflict. CEO Dennis Degner said Range’s asset positioned near the East Coast provides a strong market for its LPG exports to Europe.
“We really don't have a current exposure to the Chinese market at this particular time,” Degner said.
Some oil producers such as Matador Resources Co., on the other hand, are shoring up hedges and divesting assets as they prepare for “turbulent times.”
WoodMac’s team said $65 oil “dents margins but isn’t low enough to force dramatic budget or development plan changes. More significant budgetary action would be taken if oil settled below $60 for a month or longer. If prices were to fall toward or below $50, most operators would act decisively.”
The first non-OPEC producers to react to further price slides would be U.S. and Canadian operators, WoodMac said. Operators will make near-term cash flow the top priority, which could result in delays for even projects with strong economics.
“While service companies will seek to maintain pricing discipline, they may need to choose between market share and margin erosion in well-supplied markets,” WoodMac said.
Saligram made his position clear on Weatherford’s call. To prepare for a downturn, he said, the company has strengthened its balance sheet, improved its cost structure, set a sustainable dividend and maintain a pragmatic share repurchase program.
“What we won’t do is chase market share,” he said. “Without value, margins must be defended.”