WTI's Turbulent Decline: How Tariffs and Supply Are Shaking the Energy Market

The price of West Texas Intermediate (WTI) crude oil has entered a volatile phase in 2025, with futures sliding to $62.5 per barrel in early April amid a perfect storm of geopolitical shifts, rising U.S. production costs, and trade policy headwinds. As energy markets grapple with the dual pressures of oversupply and demand uncertainty, investors are left to navigate a landscape where every geopolitical tweet or tariff announcement could redefine the calculus of oil’s value.

The Supply Surge and Its Costs

The U.S. oil industry has long been a symbol of resilience, but rising costs are now testing its limits. Despite a modest increase in crude production—5.6 on the Dallas Fed’s oil production index in Q1 2025—exploration and production (E&P) firms face a stark reality: finding and developing new reserves now costs 17.1% more than in late 2024, while lease operating expenses have jumped 38.7%. These hikes, driven in large part by 25% U.S. steel tariffs, are squeezing margins. For smaller E&P firms, the breakeven price for existing wells has climbed to $44 per barrel, while larger companies require just $31/b—a gap that could widen as tariffs on steel, used in drill casings and pipelines, continue to bite.

Tariffs: A Double-Edged Sword

The U.S. trade war has reshaped energy markets in ways few foresaw. When the U.S. imposed 10% universal tariffs in April 2024, followed by China’s retaliatory 34% tariffs on U.S. propane, the ripple effects were immediate. Propane exports to China, once a critical revenue stream, are now projected to plummet, pushing U.S. Gulf Coast inventories to 89 million barrels by year-end—a 13.6% increase over earlier estimates. Meanwhile, the Mont Belvieu propane spot price is expected to drop to $0.80/gal, a 18% decline from 2024.

But not all sectors are suffering. Natural gas exports, buoyed by flexible LNG contracts, are set to hit 15 billion cubic feet per day (Bcf/d) in 2025—1 Bcf/d higher than anticipated, thanks to new terminals like Plaquemines LNG. This divergence underscores the uneven impact of trade policies: while propane flounders, gas thrives.

Geopolitical Crosscurrents

The recent 3% drop in WTI to $62.5/b on April’s opening week was driven by easing tensions between the U.S. and Iran. With nuclear talks showing cautious progress and new U.S. sanctions on a Chinese refinery processing Iranian crude, markets now speculate about a potential return of 1 million barrels per day (b/d) of Iranian oil to global markets. Such a surge would exacerbate oversupply concerns, especially as OPEC+ members like Kazakhstan and Iraq are already overproducing, limiting the net impact of their announced 411,000 b/d supply hike in May.

The Breakeven Balancing Act

For U.S. producers, the math is brutal. To profitably drill new wells, the average breakeven price is now $65/b, with regional variations between $61/b in the Permian Basin and $70/b elsewhere. Current prices hover near this threshold, but the Dallas Fed survey warns that a slide to $50/b—a possibility if trade disputes escalate—could force immediate production cuts. As one E&P executive bluntly put it: “$50 oil would mean U.S. energy dominance is a myth.”

Looking Ahead: A Forecast Clouded by Uncertainty

The Energy Information Administration (EIA) projects WTI will average $68/b in 2025, but recent volatility suggests this is far from certain. While the Short-Term Energy Outlook (STEO) anticipates global demand growth will slow due to tariff-driven economic drag, geopolitical risks—from Russia’s sanctions to Middle East instability—add layers of unpredictability.

Conclusion: Navigating the Energy Crossroads

Investors in energy assets face a paradox. On one hand, U.S. production growth and LNG exports suggest long-term resilience. On the other, rising costs, trade wars, and geopolitical volatility could keep prices trapped in a $60–$70 range for years. The $62.5/b price in early April reflects this tension: a market both abundant and anxious.

The data paints a clear path forward for cautious investors. Focus on low-cost producers with breakeven points below $60/b, and avoid firms overly reliant on propane exports. Meanwhile, the LNG sector’s flexibility offers a rare bright spot. But as the Dallas Fed’s uncertainty index soars to 43.1, remember this: in an era of tariff-driven chaos, the only sure bet is that nothing is certain.

The energy market’s next chapter will be written not just in barrels of oil, but in the trade policies and geopolitical deals that shape its fate.