By Ron Bousso, Energy Columnist

Hello Power Up readers,

Oil prices continued to recover ground this week following the big drops sparked by U.S. President Donald Trump's tariff announcement at the start of the month. But uncertainty continues to dominate market sentiment. 

The United States and China - who together consume over a third of global oil annually - remain at an impasse over who should take the first steps to start trade talks. And the future of U.S. tariffs on the rest of the world remains an open question. 

All this creates fertile ground for economic paralysis. As I'll discuss below, oil companies are already scaling back some U.S. drilling, and the trade war is set to have a long-lasting impact on activity in the energy sector.

Nimble U.S. oil producers are responding quickly to the economic turmoil sparked by President Donald Trump's trade war by slowing down drilling activity, while larger companies are rethinking big-ticket projects. This means short-term tariff drama could have long-term consequences for the U.S. oil industry. 

American shale drillers, particularly in the Permian basin, have upended oil markets during the past 15 years, catapulting the United States into its current position as the world's largest oil producer. But they are now running into an impasse. 

These technology-driven frackers require a relatively high oil price to expand production, between $60 to $71 a barrel, according to a recent survey of 130 producers conducted by the Dallas Federal Reserve Bank. 

The benchmark U.S. oil price currently sits at $63 a barrel, following a 9% drop since Trump's tariff announcement on April 2. And the gap is most likely even wider than it initially appears because the imposition of 25% tariffs on steel and 10% levy on other drilling equipment will almost certainly push up breakeven prices. 

This means many new wells will simply not be drilled. 

The dramatic price decline already appears to be affecting drilling activity. Drillers reduced the number of oil rigs employed in the week to April 11 by the most in any week since June 2023 to 583, energy services firm Baker Hughes said in its closely followed report. 

The short-cycle nature of fracking means these producers are the best positioned to respond quickly to oil price swings. Smaller firms tend to be the most sensitive to price changes, while larger shale producers such as Exxon Mobil and Chevron can use their large balance sheets to weather volatility. 

But given the extent of the recent price decline and the scale of the volatility, even the large players will probably retrench to the most profitable acreage within their vast shale positions. 

The International Energy Agency this week reduced its forecast for growth in U.S. shale oil production in 2025 by 70,000 barrels per day to 260,000 bpd to bring total U.S. crude output to 13.48 million bpd. 

The actual growth figure will, of course, depend on how the trade war unfolds and its impact on oil prices, but a sustained period of uncertainty and low prices would certainly be expected to drive activity sharply lower.

Graphics are provided by Reuters.

NOT ADDING UP

But much more meaningful than any short-term shifts in oil production is the heightened uncertainty over the long-term outlook that is quickly setting in among industry executives, as it will almost invariably lead to boards slowing down investments. 

This should have a particularly lasting effect on companies planning to invest in large oil and gas projects such as offshore fields that take years to develop and cost billions of dollars. Boards are expected to decide on more than 60 such large-scale upstream oil and gas projects this year and next, according to consultancy Wood Mackenzie. 

These projects would require oil prices of $42 a barrel, on average, to generate profits. At first glance, this suggests most of these projects could be cleared to go ahead with Brent crude near $65 a barrel. 

But the calculus is a bit more complicated. Leading oil and gas producers from Exxon and Chevron to Shell and TotalEnergies have significant overhead spending commitments to investors in the form of dividends and share repurchases, which have been the backbone of their investment proposition in recent years. 

On Monday I wrote about what the UK government's seizure of British Steel from its Chinese owners means for the North Sea oil and gas sector. In a nutshell, if the UK government is worried about over-reliance on foreign steel, then it should certainly be concerned about reliance on foreign oil and gas.

Staying with China, my colleague Clyde Russell wrote that Beijing's imports of major commodities were weak in the first quarter, but the challenge is working out whether the soft outcomes are mainly the result of temporary factors or signs of deeper economic malaise. The big four commodity imports, namely crude oil, iron ore, coal and copper, all saw declines in the first three months of 2025 compared to the same period in 2024.

The United States on Wednesday issued new sanctions targeting Iran's oil exports, including against a China-based "teapot" oil refinery, as President Donald Trump's administration seeks to ramp up pressure on Tehran.

Asian governments are looking to buy more U.S. oil and gas as they scramble to lower their trade surpluses with Washington in hopes of easing their potential U.S. tariff burdens. India plans to end taxes on U.S. ethane and liquefied petroleum gas (LPG) imports as part of broader negotiations with Washington, three sources said.

BP's board is up for re-election at its annual general meeting on Thursday as the group faces activist shareholder Elliott Management and climate-focused investors who have called for a vote against Chair Helge Lund.

And finally, U.S. Interior Secretary Doug Burgum ordered a halt to construction of Equinor's Empire Wind project off the coast of New York, saying information suggested the Biden administration approved it without enough environmental analysis.

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