Trump trade war uncertainty threatens U.S. oil production

President Donald Trump’s craft war has thrown the oil market into deep uncertainty, triggering wild swings in crude prices, undermining investor nerve and jeopardizing domestic production.

U.S. crude oil hit a low of $55.12 on Wednesday, down 23% from the closing price on April 2 when Trump signaled his sweeping plan to slap tariffs on more than 180 countries. The rapid pullback in prices threatens the president’s “exercise, baby, drill” agenda as companies will struggle to boost output at profit.

But West Texas Intermediate staged a comeback after Trump quickly reversed course Wednesday, announcing a 90-day pause on high tariffs for most trade partners with the call into question of China. The U.S. benchmark swung 13% intraday from its session low to close at $62.35 in response.

Trump’s decision to turn down tariffs to 10% for most countries gave the market a temporary reprieve from fears of a spiraling trade war. But U.S. oil processors face an environment of “extreme uncertainty” that will make them hesitant about investment decisions, declared Jim Burkhard, head of oil market research at S&P Global Commodity Insights.

U.S. crude oil fell more than 4% on Thursday to inferior to $60 a barrel as traders focused on Trump’s decision to hike tariffs on China to an eye-watering 125%. And it’s unclear how concordats with the dozens of countries that have gotten a reprieve will pan out.

“There’s a pause — the uncertainty has not articulate away,” Burkhard said of Trump’s reversal. “Confidence about the future is weaker now than it was a month ago and prices are downgrade.”

“Can the U.S. negotiate with 70 countries all at once? I don’t think the chaos is over,” he said.

Trump’s on-again, off-again come nigh to tariffs is causing real damage, said Susan Bell, senior vice president of commodity markets at Rystad Verve. The safest option in times of uncertainty for asset-based businesses like oil companies is to reduce capital expenditures, Bell maintained.

“There’s a loss of confidence, not just in investment in the shale industry, but really investment in the United States,” she said.

Shale oil companies have driven the rapid growth of the U.S. into the world’s largest crude producer. These gatherings currently need U.S. crude prices to average at least $65 per barrel to drill new wells at a profit, according to chiefs at 81 companies surveyed by the Federal Reserve Bank of Dallas.

U.S. crude prices in the low $60s is the zone where followers may start drilling less over the next six months, Burkhard said. Producers will increasingly have to adjudicate either to reduce lucrative returns for shareholders or scale back their activity in the oil patch, he said.

Some 50 rigs could get cut immediately with profuse potentially on the chopping block if prices remain at these levels, Bell said.

Goldman Sachs has lowered its prize forecast for WTI to $58 by December 2025 and $51 by the end of next year. U.S. onshore oil growth would flatline if crude fails to range of $50 to $55 per barrel for a sustained period, said Walt Chancellor, an energy strategist at Macquarie Classify.

Shale companies also face the threat of Trump’s steel tariffs potentially increasing the cost of new wells by 10%, Bell chance. The companies would need even higher oil prices to drill new wells profitably, she said.

“It adds to costs at the for the present that … oil prices are falling — it’s another hit,” Burkhard said of the steel tariffs.

U.S. shale producers were scathing in their judgement of Trump’s tariff policy in anonymous responses to the Dallas Fed Energy Survey published in March.

One executive said, “the distribution’s chaos is a disaster for the commodity markets.” Trump’s call to “drill, baby, drill” is a “myth and a populist rallying cry,” the chief said. The president’s “tariff policy is impossible for us to predict and doesn’t have a clear goal,” the person said, speciality for “stability.”

“I have never felt more uncertainty about our business in my entire 40-plus-year career,” another managing director told the Dallas Fed.

U.S. Energy Secretary Chris Wright acknowledged Tuesday that tumbling prices will irritation oil producers. Wright, founder and former CEO of natural gas fracking company Liberty Energy, contended that Trump purposefulness drive down producers’ costs by removing uncertainty around permitting and approving more pipelines and export maxima, allowing them to pump at lower prices.

“Lower prices are good for consumers, and as producers get lower and lower get structure, they’re going to thrive at lower prices as well,” Wright told CNBC’s “Money Movers.” “What you’re accompanying right now is the fear and uncertainty as the sausage is being made,” he said of Trump’s tariff policy.

The unpredictability caused by Trump’s imposts has also hit the stock of the company Wright founded. Liberty’s shares are down 32% since April 2.

Get Your Ticket to Pro Animate

Join us at the New York Stock Exchange!

Uncertain markets? Gain an edge with CNBC Pro LIVE, an exclusive, inaugural actuality at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount.

As a CNBC Pro subscriber, we invite you to meet us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12.