7 hours Ago By Irina Slav
Oil prices dropped off a cliff last week after President Trump announced a barrage of tariffs on global trading partners, triggering panic in the trading world. The effect has now rippled across the energy industry, set to discourage production growth—and hurt oilfield service companies. The sector was already worrying about the steel and aluminum tariffs that President Trump introduced last month as part of his radical efforts to revive U.
S. industries. The tariffs stand at a hefty 25% and apply to all steel and aluminum imports into the United States.
Initially, the effect on the oil and gas industry looked somewhat muted because industry players were not overwhelmingly dependent on imported steel and aluminum. Now, coupled with the tariffs on everything else that pushed oil to the lowest in more than three years, the effect is shaping up to be more pronounced. if(window.
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push({ placementName: "oilprice_medrec_atf", slotId: "oilprice_medrec_atf" });';document.write(write_html);} “Pipes, valve fittings, sucker rods are going to be impacted by tariffs, which will be felt by the big three in particular where they have multi-national sourcing strategies,” Ryan Hassler, vice-president of supply chain research at Rystad Energy, told Reuters recently in comments on the effect of tariffs on the oilfield sector specifically. Related: Reuters Survey Shows OPEC Output Down 110,000 Bpd in March The publication also reported that Morningstar had reduced its fair value estimates on the three biggest oilfield services majors, expecting them to book a revenue drop of between 2% and 3% this year.
Each dollar in lost revenue, the report said, translated into an operating profit loss of between $1.25 and $1.35.
A revenue drop of 2-3% is not exactly an unmanageable loss, despite the knee-jerk reaction of traders that saw shares in the big three oilfield service companies take a dive alongside crude last week. Yet it is early days, and the full impact of the tariffs on the energy industry is still to unfold. The focus of this impact will be on drilling activity.
As international benchmarks drop, exploration and production companies are going to shrink their drilling plans and hunker down to wait out the downturn, because this is exactly what it is. Oil prices tanked at the end of last week after China retaliated against the fresh 34% tariffs that Trump announced for Chinese imports into the United States with its own 34% additional tariffs—on everything that comes from the U.S.
The effect on prices was only natural, given the size and importance of China as an oil importer, as well as an importer of a lot of other things that the U.S. exports to the Asian powerhouse.
With the trade war between the two heating up, market players are not feeling a lot of optimism, which has hit oil prices, and with them, the outlook for the oilfield service industry—and it wasn’t particularly bright to begin with. In its latest quarterly energy survey , the Dallas Fed reported that the U.S.
oil industry needed oil prices of between $25 per barrel and $45 per barrel to cover its operating expenses across shale and conventional oil. However, they needed prices of between $61 and $70 per barrel to be profitable. West Texas Intermediate is currently trading around $60, and it may have further to fall because OPEC+ decided to change price control tactics at the worst—or best, depending on perspective—time.
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enabled_slots.push({ placementName: "oilprice_medrec_btf", slotId: "oilprice_medrec_btf" });`;document.write(write_html);} A day after President Trump announced his latest tariffs, the cartel said it would boost production by three times the amount it initially planned to in May.
Instead of 135,000 barrels daily, the group will now add 411,000 bpd to total production next month, citing the “continuing healthy market fundamentals and the positive market outlook.” A lot of commodity analysts would disagree with this perception as they predict a slump in global demand for oil as previously thriving economies grind to a halt amid the tariff push. Yet OPEC+ has run out of options, and it has had to deal with several countries that have consistently failed to stick to the production quota.
If it couldn’t get them in line the easy way, it was time for the hard way. All this is quite bad news for the oilfield services sector, which was already having trouble before the whole tariff thing began. Following the string of megadeals in the exploration and production sector, oilfield services companies were faced with a much smaller pool of clients with much more concentrated pricing power.
Not only that, but demand shrank, too, with companies combining their operations, as Energy Secretary Chris Wright, then still CEO of Liberty Energy, explained last year. This was supposed to prompt a similar consolidation drive in oilfield services and the prompt will just get stronger with the tariff fallout and the OPEC tactic switch that played a rather instrumental part in last week’s oil price drop. Oilfield service companies are going to consolidate in order to survive.
And there is always a silver lining: price routs in oil, whatever the reason, are invariably followed by rallies. By Irina Slav for Oilprice.com More Top Reads From Oilprice.
com.
