J. Nelson Wood, an executive in the oil sector, was on the verge of launching a multimillion-dollar drilling initiative in Illinois when President Donald Trump imposed tariffs.
As a result, the cost of essential pipes for Wood’s project has skyrocketed, doubling due to Trump’s steel import tariffs. Additionally, the price of oil has plummeted by approximately 17% this year due to concerns that these tariffs might hinder economic growth and reduce oil demand. Faced with increased costs and decreased prices, Wood stated that pursuing further oil drilling is no longer financially viable.
“It’s incredibly challenging for investors to feel secure when the markets are so unstable and in turmoil, which is our current situation,” Wood commented. “There is a significant amount of uncertainty that hinders the development of various projects across all scales, from small businesses to major corporations.”
He’s not the only one feeling this way. Oil producers nationwide are reconsidering their plans for new drilling operations and are searching for ways to cut costs as Trump’s trade war rhetoric has driven down oil prices, while tariffs have inflated drilling expenses. Additionally, broader anxieties related to potential economic slowdowns caused by tariffs are affecting companies’ investment strategies.
“President Trump’s tariff strategies are significantly undermining his ‘drill, baby, drill’ mantra,” remarked Andy Lipow, president of Lipow Oil Associates, with experience in oil refining and trading. “From the perspective of producers, they are currently facing considerably lower crude oil and natural gas prices, which impacts their revenues, while concurrently, the costs of drilling materials are increasing.”
Despite Trump announcing a temporary halt on some higher tariffs this week, he has maintained a 10% tariff on several countries, and the elevated steel tariffs are still in place. However, oil imports are exempt from tariffs, including those from Canada, provided the producers can prove that the oil was sourced in North America. Nevertheless, the significant challenges facing the oil industry demonstrate how tariffs can affect even sectors not directly impacted by them.
“Drill, baby, drill” has been a recurring slogan for Trump on the 2024 campaign trail, as he vows to boost U.S. oil production. Increasing oil output is also a key element of Treasury Secretary Scott Bessent’s 3-3-3 plan for economic growth, which aims to produce an additional 3 million barrels per day to reduce inflation and subsequently lower gas prices.
The recent decline in oil prices is expected to lead to decreased gas prices, providing some relief to consumers.
Lipow predicts that gas prices could drop by around 15 cents per gallon in the next few weeks and potentially decrease by as much as 50 cents if the U.S. enters a recession.
However, these savings at the pump might be negated by rising expenses for consumers elsewhere, particularly if the lowering gas prices are influenced by higher tariffs affecting the overall economy. Other businesses might raise their prices to cover increased tariff costs associated with importing their goods into the U.S.
“I do believe gasoline prices will start to decline, which is positive for consumers, but that could mean lower costs for driving to the store while simultaneously facing higher prices for food and other essentials,” Lipow noted.
As oil prices continue to decrease and companies pull back on new drilling endeavors, this could lead to a reduced supply, ultimately driving gas prices back up. Furthermore, it could result in fewer job opportunities and slower economic growth in rural areas reliant on the energy sector.
In Montana, Patrick Montalban expressed that his family-operated oil business, established in the 1950s, is currently experiencing financial strain. If prices remain depressed, he indicated that he would refrain from initiating new projects and might even need to reduce wages for his employees, who earn approximately $35 to $40 an hour.
Prior to the imposition of tariffs, Montalban had already witnessed a 30% increase in his operational costs since the pandemic began. Concurrently, the selling price of oil from the Montana refineries has fallen to about $49 per barrel this week, compared to $75 a barrel a year prior.
“For a small business, losing $25 per barrel directly impacts your operations,” Montalban explained. “There seems to be a perception that everyone in the oil and gas sector is wealthy and living lavishly, but that couldn’t be further from the reality for many in our industry.”
Initial Efforts to Encourage More Drilling Encounter Economic Obstacles
In the early days of Trump’s presidency, the oil industry seemed to be well-positioned to gain swiftly from his leadership. Trump issued various executive orders aimed at loosening regulations on the sector, expanding federal land available for drilling, and obstructing the development of alternative energy sources such as wind and solar.
However, these regulatory advantages have not sufficiently countered the consequences of declining oil prices for many drillers, according to Mike Cantrell, whose family has operated in the Oklahoma oil sector since the 1920s. Most of the Biden administration’s regulations had yet to be implemented, especially on smaller oil companies, and numerous drilling ventures occur on private rather than federal lands. The U.S. achieved record oil production during President Biden’s tenure, despite his efforts to transition the country away from fossil fuels.
“While we may have disapproved of the Biden regulatory environment, it particularly hasn’t impacted small producers yet. What matters, however, is the drop in prices,” stated Cantrell.
Even with Trump’s supportive stance towards the industry, Cantrell noted he isn’t surprised by the decline in oil prices during his presidency, explaining it was a trend seen during his first term as well.
“The president promotes the mantra of ‘drill, baby, drill’ while also proclaiming that we will have affordable oil. These two ideals are contradictory,” Cantrell remarked. “I recently spoke to an oil and gas association in Amarillo, Texas, and conveyed, ‘While many of you may loathe Joe Biden and intend to vote for Donald Trump, including myself, you might end up dissatisfied with oil prices under his administration.’”
After Trump’s election, Ken Hunter, who manages over 700 wells in California and Utah, began procuring the steel tubing and casings needed for a drilling project slated for summer, motivated by anticipated tariffs.
“Once Trump took office, there was a noticeable buzz around potential tariffs,” Hunter recalled. “So I thought, ‘Since we’ll need it anyway, we should secure it now and avoid any worries.’”
Nevertheless, despite acquiring the materials, he might postpone the project if oil prices continue to drop.
“Should prices keep falling, I believe it would influence our decisions regarding drilling this summer,” Hunter asserted. “Currently, the price seems to be acceptable, but if we experience a significant continued decline over a month or so, we would likely pull back on capital expenditures.”
In Illinois, Wood’s postponed initiative was set to be his largest undertaking yet, involving five new wells, each exceeding $1 million in costs.
His company operates approximately 200 older wells in the Illinois Basin and has stakes in over 100 shale wells across North Dakota and Montana. It was still in the process of recovering from the pandemic-induced oil market crash, during which demand and prices collapsed as people stayed home and airline travel nearly halted.
“In this business, we’re accustomed to cyclical pricing, yet this level of uncertainty is something you never truly adapt to. To me, it feels aberrant,” Wood shared. “Many of us have 401(k)s, and if you observe those fluctuations, it’s bound to breed uncertainty. There’s a considerable amount of anxiety in the air, and rightly so.”
