The oil market continues to navigate a complex web of global pressures, from fluctuating demand projections and volatile prices to policy-driven headwinds rooted in the ongoing trade war between the world’s largest economies. As U.S. energy firms scale back drilling activity, oil prices struggle to find their footing amid a broader economic uncertainty.
A closer look reveals a market caught between supply adjustments, political decisions, and unexpected shifts in global consumption patterns. A financial expert from QuilCapital, Steven Roy, explores how these crosswinds are shaping the present and future of the U.S. oil and gas landscape.
A Notable Drop in Drilling Activity
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In a key development this week, U.S. energy firms cut oil rigs by the largest margin since June 2023, according to Baker Hughes. The total rig count dropped by seven to 583, marking the third straight weekly decline. This move reflects an ongoing trend: a strategic shift by producers prioritizing shareholder returns over aggressive expansion, especially in a low-price environment.
The details tell a deeper story. Oil rigs fell by nine to 480, while gas rigs saw a slight increase, rising by one to 97. This change places the overall rig count of 34 rigs lower–about 6% below the level seen this time last year.
Despite these reductions, the U.S. Energy Information Administration (EIA) forecasts a modest uptick in production. Crude output is expected to rise from 13.2 million barrels per day (bpd) in 2024 to around 13.5 million bpd in 2025. However, this estimate was revised downward from previous projections due to weakening global growth expectations amid ongoing tariff disputes.
Trade Tensions Add Fuel to Market Volatility
image from statista.com
Oil prices have experienced significant turbulence as trade disputes between the U.S. and China intensify. After China raised tariffs on all U.S. goods to 125%, oil rebounded modestly. Still, the week closed with West Texas Intermediate (WTI) crude posting a nearly 2% weekly loss, continuing a downtrend that has shaved off around 15% of its value this April alone.
The steep tariff hikes are part of a broader geopolitical clash. With Washington imposing a 145% charge on Chinese imports, the retaliatory moves from Beijing have amplified fears of a global slowdown, prompting broad selloffs across commodities, equities, and bonds.
These trade frictions have also had a direct impact on demand forecasts. The EIA reduced its crude demand outlook by nearly 500,000 bpd, reflecting mounting concerns about the ability of the global economy to absorb additional supply under such strained conditions.
Permian Basin and the OPEC+ Factor
Even the Permian Basin, America’s most prolific oilfield, isn’t immune to the shifting sands. Production there is forecast to drop from 6.57 million bpd in March to 6.51 million bpd in April, signaling the weight of economic uncertainty even on traditionally resilient fields.
Meanwhile, OPEC+ has accelerated its return to full production, an action that many analysts believe has contributed further to the oversupply narrative. Oil market futures are increasingly indicating that supply is outpacing demand, a dynamic that could place even more pressure on U.S. producers to maintain discipline in their output strategies.
Gas Markets Show a Diverging Trajectory
While the oil side paints a cautious picture, natural gas markets are beginning to rebound. After a 14% drop in prices during 2024, the EIA projects a 95% increase in spot gas prices in 2025. This sharp uptick is expected to encourage more robust drilling activity, potentially offsetting some of the output declines seen earlier.
The EIA’s forecast suggests that gas production could reach 105.3 billion cubic feet per day (bcfd) in 2025, up from 103.2 bcfd in 2024 and a record 103.6 bcfd in 2023. This anticipated growth shows that while oil producers are pulling back, gas producers are preparing to ramp up operations, especially as pricing conditions improve.
Broader Economic Implications
High-level economic uncertainty is proving to be a formidable challenge for oil markets. According to market analysts, oil’s sensitivity to macroeconomic changes makes it especially vulnerable in today’s environment. With OPEC+ cuts slowly unwinding and U.S. producers scaling back, the potential for longer-term price stabilization remains uncertain.
Energy officials remain divided. Some believe the current selloff is temporary and that U.S. crude and gas liquids production could bounce back under the current administration. However, others warn that the combination of trade tensions, oversupply risks, and inconsistent demand growth could limit upside potential for the foreseeable future.
Adding to the complexity, U.S. gasoline futures also slid more than 3% this week, revealing a ripple effect across energy-linked commodities.
Conclusion
The U.S. oil and gas sector stands at a pivotal moment. On one hand, rig counts and output cuts signal a cautious response to persistent economic and geopolitical stressors. On the other, the potential rebound in gas prices and continued, albeit slower, oil output growth offer reasons for measured optimism.
But the road ahead is hardly straightforward. With tariffs altering global trade flows, and macro conditions weighing heavily on demand, the industry must adapt not only to today’s price signals but also to the broader realities of a changing global energy landscape.
COMTEX_465114429/2922/2025-05-01T12:51:06
