Fathoming the oil industry supply/demand dynamics in this period of tariff chaos and OPEC+ uncertainty is challenging. US oil producers, encouraged by the Trump administration to “drill, baby, drill,” see falling oil prices as a huge red stop sign. Given the short time between drilling and selling output from domestic shale plays, no producer wants to ship more supply into a low-price market. It is better to wait and see whether the tariff landscape changes. Therefore, producers loudly signal their unhappiness with the tariffs and announce plans to slow their drilling and fracturing activity. Such actions will lead to a falling domestic oil output, and likely quickly.
While OPEC+’s action plan contains language that allows the suspension of the scheduled supply increase, members are watching global inventories and the fallout from the tightened sanctions on Russian oil and Chinese refineries. OPEC+ was looking at a structurally stronger global oil market when they announced their plan’s acceleration; the increasing odds of a recession may upset the finely balanced market. How quickly supply can respond to a dip in demand will dictate the level of oil prices.
As the US remains the largest consuming oil market, the level of its petroleum inventories reflects the relative tightness or looseness of the worldwide oil market. As our chart shows, US petroleum inventories remain near 5-year lows. This suggests that the market remains tight and subject to price spikes if there is any supply disruption. The oil market is paying no premium for the risk of a supply disruption, an event that has been absent for years. The risk premium often adds $3–$5 a barrel to the global oil price.
The tariff chaos has an element of geopolitical risk embedded in it. Do not rule out a miscalculation or misinterpretation of statements or actions that trigger a geopolitical crisis. No one can forecast such a development, but it often occurs when least expected. Focusing only on tariffs may be a mistake.
NATURAL GAS
The weather for 2025’s first three months has been a yo-yo. It shows up in the storage data chart. We started the year with gross storage volumes about even with the 5-year maximum. Even halfway through the 2024–2025 winter, storage volumes were “normal.” That suggested supply was sufficient to handle the increased winter consumption while sustaining storage for future cold weather.
Our chart shows that storage started near the maximum but then dipped sharply during the remainder of January. By mid to the end of January, storage volumes were below the 5-year minimum storage levels. That reflected the brutal cold weather that swept across the country. Almost immediately after the cold snap, the nation experienced a warm spell. The result was that high prices prompted by the bitterly cold weather drew plenty of gas supply just as the demand fell. Storage rose sharply and quickly approached the 5-year average storage level.
Once again, Mother Nature decided we needed another bout of colder-than-normal weather, sending storage volumes back down but not as far as the 5-year minimum. Since then, warm weather has gripped much of the US, sending storage back to the 5-year average in early April.
Given the colder-than-normal weather in the eastern half of the nation in early April, while the western half has had warmer weather, it will be interesting to see how storage volumes react during the remainder of the month. The market response to this yo-yoing supply situation is reflected in natural gas prices. Our chart shows that gas prices have experienced two spikes since the start of the year. Prices peaked at about $5.50 per thousand cubic feet and again at $6 in response to the bouts of cold weather. Each time prices spiked, they fell sharply—in one case, close to $3/mcf and most recently to $4.
While the weather has dominated the natural gas market, the dynamics surrounding the Trump tariff chaos and its potential impact on global gas exports and domestic drilling remain unsettled. On one hand, the current administration wants to build up the nation’s energy industry. It exposed the cover-up of a Biden administration report that showed increased liquefied natural gas (LNG) exports would not harm consumers. It used the fear of possible price spikes to stop permitting under-construction and newly proposed LNG export terminals, disrupting the gas industry.
On the other hand, foreign governments reacted to the US tariffs by declaring that they would stop buying our LNG. The ability of governments to implement these bans remains unknown since most LNG cargos are purchased under long-term contracts. The feasibility of countries abandoning long-term LNG arrangements is questionable. Have some announcements been designed to force the Trump administration to rethink its tariff actions?
If domestic LNG exports slow, the approaching mild-weather shoulder months when demand softens may cause a gas surplus, depress prices, and rapidly build storage. The typical response to lower gas prices is a slowing in drilling. Lower drilling restarts the gas cycle of less supply, eventually driving up prices and re-stimulating drilling. How much longer gas market uncertainty reigns is unknown. Producers will be hesitant to drill and produce in a weaker-demand environment. However, this market phase will pass—how quickly is impossible to predict. Gas prices are likely to remain volatile and subject to market developments.
This feature appeared in ON&T Magazine’s 2025 May Edition, Oceanography & Remote Monitoring, to read more access the magazine here.
