President Trump's promise in last year's election makes it easier to dig much easier for oil and gas, which he believed would cut their costs and help them make more money.
These hopes are now declining. Thanks to Trump's tariffs, the oil and gas industry is fighting for rising prices for key materials, such as steel pipes, which are used to line up new wells.
While that has not yet led to meaningful changes in US drilling activities and production expectations, companies are beginning to revise budgets to reflect higher material costs. Today's decision on which wells to drill will affect production for months from now.
The oil refineries are decorated separately for tariffs on Canadian oil. Canadian oil is also necessary to produce gasoline, diesel and other fuels.
At the same time, consumers were worried about the economy, with oil prices falling about 10%, reaching around $70 a barrel just before Trump took office. Oil companies tend to reduce drilling when prices drop.
This combination could complicate Trump's desire to juice US oil and natural gas production.
“Drills, babies, drills” are directly linked to well economics,” said Lori Bron, mayor of Midland, Texas, in the heart of the most prolific US oil basin. “We can't bind ourselves.”
The planned 25% tariff on imported steel, due to be implemented on March 12, is extremely important for US oil and gas producers, with the wells often extending miles across the planet. The steel pipes used to line up those holes can account for 10% of the total cost.
Trump said in early February he would impose tariffs on steel and aluminum. The steel pipe prices had already risen before the announcement and have since climbed.
The steel pipes used at Wells were 10% more expensive in February than in October, according to the Argus Media Price Index, which reflects domestic and imported products. The types of pipes used to transport oil and gas across the country are more expensive than last fall. Both products remain cheaper than they have come out of the pandemic when supply chain disruptions send prices that rise across the economy.
Elevation Resources, a private oil and gas producer in West Texas, is one of those facing a huge jump in cost. As of late February, the company had expected to pay about 30% for the pipes used in the wells. This is because cheaper varieties are no longer available.
“When Trump announced the tariffs, the Switch overturned availability and pricing,” said Steve Pruett, chief executive of elevation.
This has not yet changed drilling plans for this year, but “it's a zero-sum game,” Pruett said. “If you have a fixed budget and you're going to have to pay for a well, you'll dig into a fewer wells.”
The US also began charging tariffs on energy imported from Canada and Mexico on Tuesday, threatening oil refineries and causing prices at pumps. These taxes were originally scheduled to come into effect in early February, but Trump has put off them for a month.
The White House did not respond to requests for comment. Trump downplays concerns about the potential economic risks of tariffs, saying the benefits are “all worth the price you have to pay.”
Trump's term is only a month, and the full impact of his policy will become more clear over the coming months. Material cost is one of many variables that determine the profitability of an oil company. Overall, the fees for drilling and fracking have been reduced Because businesses are becoming more efficient. Oil prices could swing based on geopolitical developments, including the peace deal between Russia and Ukraine, which Trump is promoting.
The Trump administration has already supported the oil and gas industry in several ways. In February, the Army Corps of Engineers moved to accelerate permits for oil and gas projects. The energy sector has registered at the proposed natural gas export facility in the Gulf Coast, where it has been waiting for green light for several years. President Joseph R. Biden Jr. suspends gas exports in January 2024. This is a move that appealed to the Environmental Group but disrupts the oil and gas company.
Also, natural gas prices are much higher than last year's. This has been extremely cold in many parts of the country, and some managers are optimistic that producing fuel would be more profitable.
Yet, in energy, like in other parts of the economy, management says it faces important uncertainty because it is extremely difficult to predict Trump's actions.
“What do you react to? Which direction do you go? This is part of the dilemma,” says Taylor Potts, sales manager at West Texas-based B&L Pipeco Services, who stocks and distributes steel pipes to oil and gas companies. “I don't know if all bets will be off next week.”
The initial impact of tariff-related price increases has been felt uneven.
Liberty Energy, a well fracks many wells of large US oil companies, has yet to see that it hasn't affected tariffs on its customers' production plans, according to Liberty CEO Ron Gusek. Fracking involves shooting sand, water and chemicals into wells at high pressure to unlock oil and natural gas. Gusek's predecessor, Chris Wright, is Trump's energy secretary.
“My guess is that you can hear different stories depending on the size of the operator,” Gusek said on his way to Wells that Liberty is fracking outside of Denver.
If tariffs cause additional costs, oil and gas producers are more likely to reduce their drilling and fracking activities than spending more, Gusek said. “They'll end up spending the same amount,” he said. “The result may be that they achieve less work.”
That's because investors want oil and gas companies to run conservatively.
After Trump said in February it would place 25% tariffs on steel and aluminum, the chief financial officer of Devon Energy, a large Oklahoma City-based oil and gas producer, the company said it expects “it will have a less than 2% impact on the overall annual capital program.”
“We feel that at this point it's pretty good that it has a slight impact on us,” Chief Financial Officer Jeff Lithenore told analysts during a recent conference call. Litenor also said Trump's trade policy is a moving target.
On Thursday, Trump said goods imported from China would be subject to an additional 10% tariff, in addition to the 10% obligation that took effect in early February.
There are some indications that oil patch activity may be picking up.
In January, Markwaters oilfield suppliers in West Texas had their best month in eight years. Revenues approached $1.3 million, up more than 40% since January 2024. Waters said he is currently planning to expand his staff, and it is based on some of the business from new businesses in the area.
Still, Waters, who described himself as a “large Trump supporter,” expressed his fears.
“We thrived under the Democrats,” Waters said of the oil business. “I think Republicans are so energy-hearted, so I think it's the opposite. But it's not really going that way in my career.”
