By Avi Salzman

Oil and oil products were exempted from President Donald Trump's broad global tariffs, but the reprieve wasn't doing much for the commodity or the stocks.

Brent crude, the international benchmark, was down 7% to $69.73 a barrel on Thursday. West Texas Intermediate crude, the U.S. benchmark, fell 7.6% to $66.25.

As for the stocks: Exxon Mobil fell 3.9%, and Chevron dropped 5%. The Energy Select Sector SPDR Fund fell 6.1%.

Oil might be getting a tariff reprieve, but it's being hit by several other things.

The most basic is that tariffs are damaging the global economy, and economic weakness tends to bring a slump in oil demand. Less trade means less economic activity, which means fewer people driving and flying. Airlines were already warning about weakening demand before Trump's latest round of tariffs.

The second is that OPEC and its allies are ramping up their oil production. On Thursday, the group announced an unexpectedly big production increase scheduled for May.

The oil market was already on the verge of oversupply, and OPEC's increase will almost certainly push it over the brink. Unless companies dramatically cut production, prices could keep falling.

At current price levels, U.S. producers probably will cut a few rigs, keeping production basically flat for the year, said Citi analyst Scott Gruber.

"A drop into the upper $50s likely results in a bigger psychological impact, with the rig count potentially falling about 75 and production down more than 300,000 barrels per day," he wrote.

The oil market is in a particularly strange position because of the specific set of factors that traders are dealing with today.

Tariffs will probably lead to inflation since the cost of the levies is normally passed along to consumers.

Normally, that's a good thing for energy stocks. They tend to do well in times of inflation because rising oil prices are often a reason for inflation -- that's what happened in 2022, when the broad market fell but oil stocks rose sharply.

This time, oil is on the downswing, and oil stocks look like they're in for a tough ride.

Write to Avi Salzman at avi.salzman@barrons.com

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April 03, 2025 12:08 ET (16:08 GMT)

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