U.S. oil and gas stocks took a major hit on Thursday, with names like Devon Energy, APA Corporation, and Diamondback Energy posting double-digit losses by midday. Devon dropped more than 12%, while APA and Diamondback slid roughly 14% and 11%, respectively.
Investors felt that, if indeed there were a Trump president, possibly energy might be one of the sectors benefiting, with all the expectations of looser regulations and increased drilling opportunities. But Wednesday night’s unexpected announcement probably came in and changed the whole outlook.
A Double Hit: Rising Costs and Falling Demand
The broader and harsher the tariffs were, I think, an element that, to some degree, shocked the markets. A direct impact on oil is one thing, for the next indirect consequence is all that U.S. drillers are suffering.
If companies operate within the U.S., basically with 25 percent tariffs on steel and aluminum-based equipment, these companies suffer from exorbitantly high input costs and global demand health concerns due to the new set of tariffs.
Higher prices for consumer goods could deter spending and traveling—a big factor lowering demand for oil with exploration and production costs at the other end.
Oil Prices Slide on Recession Worries
Crude oil prices fell in sync with the fears and lost more than 7% on the day. As of early afternoon, West Texas Intermediate traded at around $66, with a steady domestic drop further adding pressure on the oil.
With rising costs and declining revenue expectations on both sides of the balance sheet, oil producers have probably been forced to rethink drilling. APA, in fact, announced a 15% workforce reduction last month, and such actions may soon follow throughout the industry.
Uncertainty Ahead
The future remains shrouded in uncertainty. The energy industry is generally quick to respond to changes in macroeconomic conditions, and this volatility is not a pleasant addition.
For long-term investors, some value might appear in this lower price structure, but the short-term looks distressed. Much will hinge on how the tariff situation unfolds and whether oil demand stabilizes over the coming months.
