Markets entered a nosedive last week after President Trump’s tariffs went into effect, continuing to see a market sell-off.
And while oil and gas imports are exempted from tariffs, we’re still seeing upheaval in energy markets, too. Oil prices tumbled last week with U.S. benchmark West Texas intermediate crude hitting its lowest price since April of 2021.
Matt Smith, energy analyst for Kpler, joined Texas Standard with a breakdown. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Lowest price since April 2021. What’s up?
Matt Smith: Oh, gosh. It’s not for a good reason, in that oil prices are selling off. They’re being swept up in this broader market sentiment.
We’re seeing equity markets absolutely tanking here, rout continuing to start this week, simply because of the tariffs and the concerns surrounding that – reciprocal tariffs, retaliatory tariffs, etc. And so that is stoking recessionary concerns, uncertainty, a flight from risk, and oil is getting caught up with that.
The double whammy actually, on the oil price side of things, is that OPEC announced that it’s going to continue to put barrels onto the market and actually accelerating that flow in April here.
And so it’s a combination of those things that has sent us down to be… Overnight we actually dipped below $60 on WTI.
So what’s the takeaway for you? I mean, as you look at these energy markets and you say that crude oil has been swept up in this rout in the equity markets, what do you mean by that? Is it that just people are getting more protective of where they’re putting their capital?
From the equity perspective, the sell-off there is suddenly where a recession didn’t seem like it could happen just a few weeks ago, the chance of that has increased.
From an oil perspective, it’s being sold off because it’s a commodity and there’s a certain amount of speculation in commodities and so we’ve not just seen it in crude, we’ve seen it in copper, other commodities… But it’s also specifically related to oil demand, so if you do see us moving into a recession, a global slowdown, that means less demand for oil, which equates to a lower oil price.
I’m not an expert in math or anything, but this can’t be good for Texas oil producers, can it?
No, it’s not. And actually the Federal Reserve of Dallas puts out a quarterly report and it issued its Q11 on March 26, something like that. And in that, it said that the breakevens to be profitable for onshore oil has to be around $65, something like that, and here we are at $60.
And so we’re already seeing a slowdown in activity, like really over the last year as prices have hovered around $70. This move lower, in terms of prices, will likely accelerate the lack of activity.
And that’s not good for Texas. That’s not for Texas oil producers, but what about consumers – not just in Texas, but beyond?
Yeah, there’s always that double-edged sword, right?
It means that we’re going to see lower gasoline prices. And so for Texas right now, we’re at $2.85. We’re going to be playing catch-up with the drop on that oil price because that is such a large input into gasoline prices, and so we could be charging towards potentially $2.50, something like that.
That’s extreme, if we see the sell-off continue. But point being is we’re at a time, seasonally, where you see gasoline prices increase, you see a switch to summer blend, which is essentially more expensive because it has additives in that gasoline. So you tend to see prices of the pump increasing, whereas this may completely tamp that down.
And so yes, it’s positive for the pocketbooks, but it’s not for the right reasons, right? The reasons that gasoline is dropping is because like, say, for example, when we saw back in the pandemic, it was just a slowing down of the economy.
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Coming into office, though, President Trump did say he wanted to do something about lower energy prices to offset inflationary pressure. But of course, you look at oil prices below $60 now, I think you said at last check… That couldn’t have been part of the plan.
Well, you know, he’s targeted a lower 10-year treasury yield and that has really come off. He’s targeted lower oil prices because it reflects through to lower prices at the pump, and that’s happened too.
And so, you know, this hasn’t happened for the reasons that it should have done or it’s not a positive thing. But really, at the end of the day, he is achieving his goals here and he’s doing this through tariffs.
If we know one thing about President Trump, he’s a deal maker, right? He’s he wrote a book called “The Art of the Deal.” He’s trying to negotiate with all these different countries to try and get a certain deal for the U.S. – a better situation.
So maybe he’s just taking the view that short-term pain results in longer-term gain and that pain is being felt in inequities and the oil market.
