The oil and gas market dropped this week on a number of news items that seemed to hit the energy industry all at once. OPEC is increasing production, the U.S. economy may be slowing, and U.S. tariffs have become a topic once again.
According to data provided by S&P Global Market Intelligence, Marathon Petroleum (MPC +5.33%) fell as much as 8.8% this week and is down 8.2% at 3:00 p.m. ET, Diamondback Energy (FANG 0.97%) dropped 12.2% but is now down 10.9%, and APA Corporation (APA +3.61%) lost 9.8% of its value and is currently off 8.9% this week.
NASDAQ: FANG
Key Data Points
OPEC+ production increase
On Monday, OPEC+ announced it will increase production in April by an estimated 138,000 barrels per day. The move was said to protect the group's market share and allow flexibility to support the oil market.
Part of the theory behind the move may have been to help increase demand as tariffs are enacted around the world, and there's talk of U.S. President Donald Trump cutting off Iran's oil exports by halting trade and other moves that could disrupt the flow of energy. But an increase in supply naturally leads to lower prices, and that's the simple answer for the move this week.
WTI Crude Oil Spot Price data by YCharts.
U.S. economic questions
Within the U.S., there's growing fear that a recession is on the horizon. Consumer data so far this year has been very weak, and the Atlanta Fed's GDPNow reading predicts a nearly 3% drop in gross domestic product (GDP) in the first quarter of 2025.
The data isn't out yet, but we do know that auto sales are down and retailers have been very tepid in their outlooks for 2025. That's not very bullish for the oil and gas industry, which wants to see demand growth overall.
Trump tariff unknowns
Add in the tariffs from the White House that seem to come and go depending on the hour. Most tariffs have been delayed, but there will be higher prices for goods in the U.S. this year, and countries like China and Canada have indicated they're willing to wage a trade war with the U.S.
Again, negative economic momentum would be negative for oil and gas demand, and that will ultimately drive lower prices and earnings for energy companies.
Uncertainty is the name of the game
The oil and gas markets are inherently driven by supply and demand, so any change in either will be reflected in prices.
On the supply side, it looks like OPEC+ is increasing production, and that will put downward pressure on prices.
On the demand side, there are real questions about economic growth in the U.S. and whether a trade war will affect global demand for oil.
These are trends that may not end anytime soon, and for that reason, I think caution is the best strategy in energy today. The headwinds appear to be getting stronger, and without lower interest rates or help from OPEC+ in reducing supply, it may be these companies that take the brunt of the lower oil prices.
