Trump trade war uncertainty threatens U.S. oil production
An oil pumpjack is seen in a field on April 08, 2025 in Nolan, Texas.
Brandon Bell | Getty Images
President Donald Trump’s trade war has thrown the oil market into deep uncertainty, triggering wild swings in crude prices, undermining investor confidence 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 announced his sweeping plan to slap tariffs on more than 180 countries. The rapid pullback in prices threatens the president’s “drill, baby, drill” agenda as companies will struggle to boost output at profit.
But West Texas Intermediate staged a comeback after Trump suddenly reversed course Wednesday, announcing a 90-day pause on high tariffs for most trade partners with the exception of China. The U.S. benchmark swung 13% from its session low to close at $62.35 in response.
Trump’s decision to lower tariffs to 10% for most countries gave the market a temporary reprieve from fears of a spiraling trade war. But U.S. oil producers face an environment of “extreme uncertainty” that will make them hesitant about investment decisions, said Jim Burkhard, head of oil market research at S&P Global Commodity Insights.
Weaker confidence
U.S. crude oil fell more than 4% on Thursday to under $60 a barrel as traders focused Trump’s decision to hike tariffs on China to an eye-watering 125%. And it’s unclear how negotiations with the dozens of countries that have gotten a reprieve will pan out.
West Texas Intermediate crude oil prices over the past month
“There’s a pause — the uncertainty has not gone away,” Burkhard said of Trump’s reversal. “Confidence about the future is weaker now than it was a month ago and prices are lower.”
“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 approach to tariffs is causing real damage, said Susan Bell, senior vice president of commodity markets at Rystad Energy. The safest option in times of uncertainty for asset-based businesses like oil companies is to reduce capital expenditures, Bell said.
“There’s a loss of confidence, not just in investment in the shale industry, but really investment in the United States,” she said.
Oil production threatened
Shale oil companies have driven the rapid growth of the U.S. into the world’s largest crude producer. These companies currently need U.S. crude prices to average at least $65 per barrel to drill new wells at a profit, according to executives at 81 companies surveyed by the Federal Reserve Bank of Dallas.
U.S. crude prices in the low $60s is the zone where companies may start drilling less over the next six months, Burkhard said. Producers will increasingly have to decide 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 more potentially on the chopping block if prices remain at these levels, Bell said.
Goldman Sachs has lowered its price 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 falls to range of $50 to $55 per barrel for a sustained period, said Walt Chancellor, an energy strategist at Macquarie Group.
Shale companies also face the threat of Trump’s steel tariffs potentially increasing the cost of new wells by 10%, Bell said. The companies would need even higher oil prices to drill new wells profitably, she said.
“It adds to costs at the time that their that oil prices are falling — it’s another hit,” Burkhard said of the steel tariffs.
U.S. shale producers were scathing in their criticism of Trump’s tariff policy in anonymous responses to the the Dallas Fed Energy Survey published in March.
One executive said “the administration’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 executive said. The president’s “tariff policy is impossible for us to predict and doesn’t have a clear goal,” the person said, calling for “stability.”
“I have never felt more uncertainty about our business in my entire 40-plus-year career,” another executive told the Dallas Fed.
U.S. Energy Secretary Chris Wright acknowledged Tuesday that tumbling prices will worry oil producers. Wright, the founder and former CEO of natural gas fracking company Liberty Energy, argued that Trump will drive down producers’ costs by removing uncertainty around permitting and approving more pipelines and export terminals, allowing them to pump at lower prices.
“Lower prices are good for consumers, and as producers get lower and lower cost structure, they’re going to thrive at lower prices as well,” Wright told CNBC’s “Money Movers.” “What you’re seeing 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 tariffs has also hit the stock of the company Wright founded. Liberty’s shares are down 32% since April 2.
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On today’s fleet-focused episode of Quick Charge, we talk about a hot topic in today’s trucking industry called, “the messy middle,” explore some of the ways legacy truck brands are working to reduce fuel consumption and increase freight efficiency. PLUS: we’ve got ReVolt Motors’ CEO and founder Gus Gardner on-hand to tell us why he thinks his solution is better.
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Thanks to Trump’s repeated executive order attacks on US clean energy policy, nearly $8 billion in investments and 16 new large-scale factories and other projects were cancelled, closed, or downsized in Q1 2025.
The $7.9 billion in investments withdrawn since January are more than three times the total investments cancelled over the previous 30 months, according to nonpartisan policy group E2’s latest Clean Economy Works monthly update.
However, companies continue to invest in the US renewable sector. Businesses in March announced 10 projects worth more than $1.6 billion for new solar, EV, and grid and transmission equipment factories across six states. That includes Tesla’s plan to invest $200 million in a battery factory near Houston that’s expected to create at least 1,500 new jobs. Combined, the projects are expected to create at least 5,000 new permanent jobs if completed.
Michael Timberlake of E2 said, “Clean energy companies still want to invest in America, but uncertainty over Trump administration policies and the future of critical clean energy tax credits are taking a clear toll. If this self-inflicted and unnecessary market uncertainty continues, we’ll almost certainly see more projects paused, more construction halted, and more job opportunities disappear.”
March’s 10 new projects bring the overall number of major clean energy projects tracked by E2 to 390 across 42 states and Puerto Rico. Companies have said they plan to invest more than $133 billion in these projects and hire 122,000 permanent workers.
Since Congress passed federal clean energy tax credits in August 2022, 34 clean energy projects have been cancelled, downsized, or shut down altogether, wiping out more than 15,000 jobs and scrapping $10 billion in planned investment, according to E2 and Atlas Public Policy.
However, in just the first three months of 2025, after Trump started rolling back clean energy policies, 13 projects were scrapped or scaled back, totaling more than $5 billion. That includes Bosch pulling the plug on its $200 million hydrogen fuel cell plant in South Carolina and Freyr Battery canceling its $2.5 billion battery factory in Georgia.
Republican-led districts have reaped the biggest rewards from Biden’s clean energy tax credits, but they’re also taking the biggest hits under Trump. So far, more than $6 billion in projects and over 10,000 jobs have been wiped out in GOP districts alone.
And the stakes are high. Through March, Republican districts have claimed 62% of all clean energy project announcements, 71% of the jobs, and a staggering 83% of the total investment.
A full map and list of announcements can be seen on E2’s website here. E2 says it will incorporate cancellation data in the coming weeks.
Read more: FREYR kills plans to build a $2.6 billion battery factory in Georgia
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Tesla has reportedly delayed the launch of its new “affordable EV,” which is believed to be a stripped-down Model Y, in the United States.
Last year, Tesla CEO Elon Musk made a pivotal decision that altered the automaker’s direction for the next few years.
The CEO canceled Tesla’s plan to build a cheaper new “$25,000 vehicle” on its next-generation “unboxed” vehicle platform to focus solely on the Robotaxi, utilizing the latest technology, and instead, Tesla plans to build more affordable EVs, though more expensive than previously announced, on its existing Model Y platform.
Musk has believed that Tesla is on the verge of solving self-driving technology for the last few years, and because of that, he believes that a $25,000 EV wouldn’t make sense, as self-driving ride-hailing fleets would take over the lower end of the car market.
However, he has been consistently wrong about Tesla solving self-driving, which he first said would happen in 2019.
In the meantime, Tesla’s sales have been decreasing and the automaker had to throttle down production at all its manufacturing facilities.
That’s why, instead of building new, more affordable EVs on new production lines, Musk decided to greenlight new vehicles built on the same production lines as Model 3 and Model Y – increasing the utilization rate of its existing manufacturing lines.
Those vehicles have been described as “stripped-down Model Ys” with fewer features and cheaper materials, which Tesla said would launch in “the first half of 2025.”
Reuters is now reporting that Tesla is seeing a delay of “at least months” in launching the first new “lower-cost Model Y” in the US:
Tesla has promised affordable vehicles beginning in the first half of the year, offering a potential boost to flagging sales. Global production of the lower-cost Model Y, internally codenamed E41, is expected to begin in the United States, the sources said, but it would be at least months later than Tesla’s public plan, they added, offering a range of revised targets from the third quarter to early next year.
Along with the delay, the report also claims that Tesla aims to produce 250,000 units of the new model in the US by 2026. This would match Tesla’s currently reduced production capacity at Gigafactory Texas and Fremont factory.
The report follows other recent reports coming from China that also claimed Tesla’s new “affordable EVs” are “stripped-down Model Ys.”
The Chinese report references the new version of the Model 3 that Tesla launched in Mexico last year. It’s a regular Model 3, but Tesla removed some features, like the second-row screen, ambient lighting strip, and it uses fabric interior material rather than Tesla’s usual vegan leather.
The new Reuters report also said that Tesla planned to follow the stripped-down Model Y with a similar Model 3.
In China, the new vehicle was expected to come in the second half of 2025, and Tesla was waiting to see the impact of the updated Model Y, which launched earlier this year.
Electrek’s Take
These reports lend weight to what we have been saying for a year now: Tesla’s “more affordable EVs” will essentially be stripped-down versions of the Model Y and Model 3.
While they will enable Tesla to utilize its currently underutilized factories more efficiently, they will also cannibalize its existing Model 3 and Y lineup and significantly reduce its already dwindling gross margins.
I think Musk will sell the move as being good in the long term because it will allow Tesla to deploy more vehicles, which will later generate more revenue through the purchase of the “Full Self-Driving” (FSD) package.
However, that has been his argument for years, and it has yet to pan out as FSD still requires driver supervision and likely will for years to come, resulting in an extremely low take-rate for the $8,000 package.
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