Justin Hamel / Bloomberg via Getty Images
Takeaways
- Monday, oil prices fell to their lowest level since the beginning of April 2021 as fears about a tariff-induced slowdown in the economy continued to weigh heavily on markets.
- President Trump ran his campaign on taming the inflation, partly by increasing U.S. supply of oil to lower energy costs.
- Oil prices are so low due to pessimism over the global economy that producers may find it difficult to increase production profitably.
Oil prices fell to the lowest level in many years on Monday, as concerns about reciprocal tariffs announced by President Donald Trump last week continued to ripple throughout global markets.
The benchmark U.S. crude-oil futures contract, West Texas Intermediate, traded at $58.96 in the morning on Monday, its first dip below $60 date since April 2021. Oil prices are down about 15% since Trump’s announcement of sweeping tariffs on Wednesday. These tariffs are expected by many to raise the U.S. effective tariff rate to the highest level seen in more than 100 years.
Economists warn of the impact that such tariffs will have on global economic growth. This will affect oil demand. Trump’s campaign was centered around taming the inflation rate and has linked this goal with cheaper energy.
“Oil prices have dropped, interest rates have fallen (the Fed should lower rates as it is moving slowly!Food prices are down and there is NO inflation, he wrote on Truth Social Monday morning.
Oil prices are directly incorporated into inflation formulas, and they also have an indirect impact on prices by affecting the cost of production and shipping. They are also volatile. This is why some economists believe that core inflation, which excludes food and energy prices, is a better indicator for inflationary trends.
The Personal Consumption Expenditures Prices Index, which is the preferred measure of inflation by the Federal Reserve, rose 0.3% between December, January, & February. Meanwhile, core PCE accelerated in each of those months and rose 0.4% in February.
Lower oil and natural gas prices can offset some of the price increases due to tariffs, but there will be economic consequences. According to the Dallas Fed Energy Survey’s most recent report, oil producers need to drill new oil wells at an average price of $65. Nearly 60% of them require higher prices. It could complicate Trump’s plan to “unleash American energy” by encouraging producers of oil to ramp up production.
“In a strange twist to the administration's hope for more domestic oil and gas production, higher steel tariffs may result in fewer wells completed due to higher completion costs,” one oilfield services firm recently told the Dallas Fed. “The margins on many wells are too thin and this will result in downward pressure to the total wells brought into service.”
The president has claimed that the higher costs can offset by cutting regulations. He claims that these regulations burden oil and gas companies with unnecessary costs. Some drillers in the Permian basin, which produces nearly half of America’s crude oil, claim that the new administration’s plans for regulatory reform will not be a “real change at all.”
According to one firm, “we still get our permits in Texas from the Railroad Commission, not the Environmental Protection Agency.” “The federal regulatory system is important if you operate in the Gulf of Mexico, Alaska, but not the Permian Basin, Eagle Ford, Bakken or Utica.”
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Truth Social. “@realDonaldTrump, April 7, 2025, 6:49 a.m. ET.”
Federal Reserve Bank of Dallas. “Dallas Fed Energy Survey, Q1 2025.”
White House. "Unleashing American Energy."
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