What US oil and gas companies face amid trade and OPEC+ changes

Recent tariffs and OPEC+ decisions are reshaping the landscape, affecting companies’ investment and production strategies.

In brief

• The Trump administration’s trade policies, including steel tariffs, pose risks to US oil and gas companies, impacting global supply chains and costs.
• Despite heightened vulnerability, EY economic modeling suggests the overall impact of steel tariffs on the oil and gas sector will be modest.
• OPEC+ output decisions and economic uncertainty are expected to dampen investment prospects, leading companies to revise their strategic plans.

President Donald Trump’s second administration, while generally friendly toward the production of hydrocarbons, still carries some risks. Chief among these are questions about the impacts of his trade policy on global supply chains, including critical components for oil and gas (O&G) production. Some of these concerns materialized when the Trump administration announced a series of tariffs, including tariffs on steel imports into the United States. And contrasted with similar levies imposed in 2018, this order carried no exemptions for imports of oil country tubular goods (OCTG), encompassing various steel pipes, including casing, tubing and drill pipes used in the production and transportation of hydrocarbons.

An EY team analyzed these trade measures and found some surprising results.¹ Despite the O&G sector’s heightened vulnerability to steel tariffs compared with the US industry sector average — and the critical reliance on imports to satisfy about half of OCTG demand — the effect of these tariffs alone is likely to have a more modest impact on O&G investment and production than the more dire expectations stemming from the headline news.

But these optimistic results come with two important caveats. First, the tariffs have a more direct impact on the oil field services equipment (OFS-E) manufacturing sector, and the transmission of these costs and other disruptions may impact some upstream projects more than others. Second, when viewing the broader trade and economic picture — beyond just steel, including the range of tariffs and OPEC+ output decisions — changing expectations will significantly increase market and price volatility, leading companies to significantly revise their strategic plans around upstream and exploration investments as well as planned M&A activity.

Source: EY Economic Analysis Team

The activities of the OFS-E companies are not included in the O&G sector in this model but are reflected in the model as equipment manufacturing and metal products fabrication, suggesting a much greater impact in this subsector. Future contracts are likely to be anchored on significantly higher steel price expectations, which could exceed the modeled results. Already we are seeing some indications of this pressure point, especially in the increasing use of stronger material adverse change clauses, particularly in fixed-fee or lump-sum turnkey (LSTK) contracting. This is growing out of a concern that not only will there be greater price volatility, but in some cases, availability could be affected as well.

Adding to these concerns, exploration and production operators often engineer equipment to their own specifications rather than industry standards. As a result, the impacts on individual equipment for specific projects may be more significant than the EY model suggests for the sector as a whole.

And finally, these price concerns are coming on top of projects in some cases that had already faced significant delays in the permitting or commercial development phases. Coupled with escalating financing costs, even small increases in materials expenses could prove an unsurmountable burden to reach final investment decision (FID) in the short term.

Shifting expectations

The far more important explanation for a relatively benign result is that the model considers only the impact of steel tariffs, and measures these against the baseline of prior expectations. But the new tariffs are across all goods. As a result, global economic activity is expected to slow due to reduced global trade volumes, tighter financial conditions and increased uncertainty. The combined impacts are projected to lower global economic activity by 0.8 percentage point in 2025 and 1.5 percentage points in 2026. Along with the anticipated effects of uncertainty, the model suggests that Brent oil prices could fall by $20 per barrel by early 2026. Of this total, an EY analysis of the combined global impacts of all global trade restrictions suggests that the direct impact of steel tariffs is less than $1 per barrel.

Figure 2. Potential impact of tariffs on oil prices, USD per barrel

Source : EY Economic Analysis Team analysis using Oxford Economics Global Economic Model.

Already, this growing uncertainty is playing out in expectations for the unconventional space in the US oil patch. OFS companies have largely stopped providing forward outlooks beyond 90 days, reflecting a murky outlook, especially for smaller exploration and production companies’ drilling outlooks.

However, the fundamentals of economic activity and impacts on aggregate demand are just one factor influencing oil market conditions and expectations. Another large impact is OPEC+ and its output and market management decisions. Nearly coinciding with the announcement of new tariffs, OPEC+ announced much larger-than-expected planned output increases beginning in May. These announcements surprised the markets and seemed to suggest a focus on internal discipline rather than managing surplus production ahead of any economic slowdown.

Combined, these two elements have dramatically altered prior expectations and baseline scenarios for the economy and O&G investments. Specifically, the sector had been poised for continued investment — despite some growing geologic challenges — as well as continued M&A activity, aimed at consolidating core production areas and potentially expanding exploration opportunities. With dampened economic expectations and increased price volatility, the EY team expects uncertainty to weaken prospects in both areas until there is greater certainty around economic and trade conditions.