Trump’s Tariffs Leave Shale Industry Stunned
No one fully understands yet how the global economy will ultimately respond to sweeping new tariffs announced by newly re-elected U.S. President Donald Trump — especially as policies continue to shift. One thing is clear: demand forecasts for oil are falling across the board, keeping Brent crude prices from rising above $70 per barrel. All eyes are on OPEC+, but even supply forecasts — particularly in the U.S. — have now been revised downward.
On April 2, Trump announced a 10% import tariff on all goods from 185 trading partners. Additional duties were set for major economies: 20% for the EU and a staggering 34% for China. Beijing quickly responded with its own set of retaliatory tariffs. As a result of the tit-for-tat measures, U.S. tariffs on Chinese goods have reached a prohibitive 134%.
Just a week later, the U.S. delayed tariff implementation for 90 days for 75 countries and temporarily exempted certain electronics, including smartphones, from China.
EIA Reacts First
The U.S. Energy Information Administration (EIA) was the first major agency to factor the new tariff chaos into its forecasts. It slashed global oil demand growth projections for 2025 by 400,000 bpd — the steepest cut among EIA, IEA, and OPEC — and now expects demand to rise by 900,000 bpd in 2025 and by 1 million bpd in 2026.
While Asia is most affected by the demand downgrade, EIA still sees it as the key growth driver. India is forecast to increase liquids consumption by 300,000 bpd annually in 2025 and 2026 (vs. 200,000 bpd in 2024), while China is expected to add 200,000 bpd per year.
Amid expected OPEC+ supply increases starting in May, the new tariffs are projected to swell commercial oil inventories from mid-year, pushing prices down. EIA now forecasts Brent crude to average $68 in 2025 (down $6) and $61 in 2026 (down $7). Added to this is uncertainty over sanctions on Russia, Iran, and Venezuela.
EIA also highlighted the impact of Chinese retaliatory tariffs on U.S. propane exports. In 2024, the U.S. supplied 32%of China’s propane imports, followed by Iran (17%), Qatar (7%), and UAE (3%).
Still, the agency believes OPEC+ will maintain output below target to manage inventory growth and support prices.
U.S. Shale Faces Margin Pressure
EIA expects non-OPEC+ supply to increase by 1.2 million bpd in 2025 and 700,000 bpd in 2026 — led by the U.S., Canada, Brazil, and Guyana. Total global liquid supply is expected to rise by 1.3 million bpd in 2025 and 1.2 million bpd in 2026.
U.S. crude production (excluding NGLs) is expected to rise by 300,000 bpd this year and just 50,000 bpd next year, with 2025 output now forecast at 13.51 million bpd and 2026 at 13.56 million bpd.
According to Matthew Bernstein, VP at Rystad Energy, breakeven costs for U.S. shale producers now exceed $62 per barrel, factoring in minimum returns, dividends, and debt service. While the Permian Basin remains profitable, investor pressure for high dividends threatens output growth in its lower-margin areas.
The IEA, citing Dallas Fed data, notes U.S. shale drillers are “shocked.” They need an average of $65 WTI to drill profitably, while current prices hover near $60. Steel tariffs are also seen as a negative for drilling economics.
IEA cut its 2025 U.S. liquids production forecast by 150,000 bpd to 20.7 million bpd, with 2026 expected to grow by only 280,000 bpd. For breakeven operating costs, the industry needs $41 WTI on average, up from $39 last year, and $65 WTI to profitably drill new wells.
Respondents in the Dallas Fed survey expect WTI to average $68 by the end of 2025, with long-term expectations rising to $74 in two years and $82 in five years.
IEA analysts warn that in addition to low prices, geology, technology, and market dynamics will limit future shale growth. Productivity gains are now stagnating after years of offsetting well slowdowns.
OPEC+ Supply and Demand Outlook
Compared to the previous month, the IEA cut its 2025 global demand growth forecast by 300,000 bpd, and projects just 690,000 bpd of growth in 2026 — weighed down by weak macroeconomic sentiment and the rise of EVs.
OPEC+ is now expected to increase output by only 225,000 bpd in May, far below the planned 411,000 bpd, as several members — including Iraq, Kazakhstan, and UAE — continue to overproduce and must compensate. OPEC has requested updated compensation schedules by April 15.
OPEC’s own forecast lowered demand growth for 2025 by 150,000 bpd to 1.3 million bpd, with similar expectations for 2026. However, production discipline remains shaky. In March, Iraq exceeded its quota again, pushing its “debt” to nearly 2 million bpd. Kazakhstan also overshot by 420,000 bpd that month.
Brent, Urals, and Russia’s Budget Risks
Goldman Sachs cut its Brent forecast for the second time, now expecting $69/bbl in 2025 (down $6) and $58/bbl in 2026 (down $4). With Russian Urals crude trading at a discount — around $54/bbl — oil revenues for the Russian budget are at risk.
According to Renaissance Capital, Russia’s oil and gas sector faces the heaviest tax burden in the economy, and falling revenues could lead to new tax initiatives targeting the industry. Additionally, a weaker ruble is likely if oil prices continue to fall sharply.
