5 hours Ago By Irina Slav
Oil and gas drillers are bracing for the effects of the latest round of tariffs that President Trump has adopted in his attempts to revive domestic industries and punish U.S. trade partners for what he sees as unfair treatment for years.
Luckily, the effect is unlikely to be all that serious. The latest targets of Trump’s tariff offensive were steel and aluminum—both critical metals for the oil and gas industry. The president slapped an import tariff of 25% on all steel and aluminum entering the United States, angering the European Union, which threatened counter-tariffs, saying that “Tariffs are taxes.
They are bad for business, and even worse for consumers,” per European Commission President Ursula von der Leyen. if(window.innerWidth ADVERTISEMENTfreestar.
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write(write_html);} Many disagree with Trump’s approach to trade policy and many support it, sharing the perception that U.S. manufacturers have been short-changed by trade partners for decades.
For oil and gas drillers, however, the new import tariffs on steel and aluminum would mean higher costs at a time when oil prices are depressed. Related: Saudi Aramco, IEA Chiefs Clash In Houston Over The Future Of Oil “About 14% of what we buy, it comes from countries that will be impacted by tariffs,” Andy Hendricks, the chief executive of Patterson-UTI, which is among the biggest providers of drilling equipment, told Reuters. “If you layer on tariffs, it could affect us in the low single digits in terms of our costs going up for what we do.
” Single-digit does not sound like a lot, and the effect of tariffs is further mitigated by the fact that U.S. drilling equipment and services providers do not import all of the hot-rolled steel and aluminum they need.
Per Wood Mackenzie figures, U.S. drillers imported some 40% of the so-called oil country tubular goods they needed last year.
This year, just 16% of that total imported volume came from Canada and Mexico as sector players anticipated the tariff offensive. As part of that anticipation, they stocked up on OCTG from Canada and Mexico ahead of the tariffs. Opinions on the impact of tariffs differ, however.
Rystad Energy, for instance, expects the import duties to have a double-digit effect on costs in the oil and gas industry, raising them by an estimated 15%, or $890 per ton of OCTG. S&P Global Commodity Insights agrees. “It's probably going to be harder for service companies in 2025 to maintain their activity levels and their pricing,” Enverus principal analyst for OFS Intelligence Mark Chapman told Reuters.
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“OCTGs represent about 8.5% of drilling and completion costs for onshore wells in the Lower 48 states. So if prices rose by 25%, about 2.
1% would be added to well costs,” Wood Mackenzie analyst Nathan Nemeth told Reuters. Yet American steel producers are set to benefit from the tariffs, which is what the purpose of the exercise is, after all. Ultimately, the idea is to become more self-reliant rather than reliant on external suppliers of key goods.
Theoretically, protectionism makes sense. In practice, last time Trump imposed tariffs in steel and aluminum imports, so many exemptions followed after heavy lobbying from heavy steel users that the tariffs basically became useless. Interestingly, when President Biden took office after Trump’s first term, he did not cancel the tariffs.
Instead, he set quotas for imports above which the tariffs would apply, demonstrating a milder version of Trump’s protectionism. The oilfield services industry did not collapse in 2018 when Trump introduced his first tariffs on steel and aluminum, and chances are it will not collapse now, either. There will probably be exemptions from the current tariff regime, and there may be tweaks to it in order to shield domestic industries from the worst of the fallout until the market self-regulates.
By Irina Slav for Oilprice.com More Top Reads From Oilprice.com.
