Trump’s tariffs send global oil prices tumbling, posing new challenges to fossil fuel firms

Trump has made lower oil prices a central plank of his ambitions for a second term. However, he may have got more than he bargained for, as global oil prices have now fallen below breakeven levels for US oil producers. This has created a markedly more challenging market environment for the fossil fuel industry.

Trump is promoting a drop in oil prices in an attempt to mitigate the inflationary effects of his tariffs.

Last week, OPEC, which produces around 40% of the world’s crude oil supply, announced plans to triple output, triggering a further 6% drop in global oil prices.

With global equity markets falling, there are growing expectations that a recession in Asia could apply additional downward pressure on prices. Earlier today, US bank Citi cut its forecast for Brent Crude to $60 per barrel over the next three months, warning traders not to invest in the commodity. The forecast came in an analyst note by Max Layton, Citi’s global head of commodities research. “We recommend that investors and consumers refrain from buying (and remain short) risk-exposed commodities such as oil and base metals until the ‘Fed put’ or a material ‘Trump put’ kicks in, or until copper reaches $7,500/t (the Q3 2022 lows), or we see a major US shale or OPEC+ response (unlikely until we go below $60/bbl), whichever comes first,” the note stated.

Breakeven challenge

The fall in oil prices coincides with a 5% rise in breakeven costs for new oil and gas production over the past year, according to Rystad. Connor Chung, energy finance analyst at IEEFA, warned: “The crisis-era windfalls now lie in the rear-view mirror. Despite gains in oil and gas output, the industry’s profits have sagged. Traditional energy, in fact, has seen one of the weakest comebacks of any S&P 500 sector since the equity market trough in 2022.”

“Tariffs (real or threatened) are only heightening this problem, provoking cost increases in materials and equipment needed for drilling, while causing economic jitters that depress demand,” he added.

Many institutional investors remain committed to major oil producers, pointing to strong industry performance following the Covid pandemic. Oil companies have taken this as a cue to double down on new fossil fuel extraction while scaling back investment in renewables.

But the slump in prices may provide another opportunity for long-term investors to reassess their exposure to the fossil fuel sector. Firms such as Shell, BP, Total and Saudi Aramco have underperformed their respective regional benchmark indices so far this year.