Kissler: Will Tariffs Continue to Drive Energy Markets?

In the past, the COVID-19 pandemic and its aftereffects were a major driver influencing global energy markets. However, this year, the tariffs implemented by the U.S. to try to balance global trade supplanted the post-COVID environment as a major influencer.

That said, just how much tariffs will continue to impact energy markets depends on a number of variables, such as the tariffs’ eventual size and scope. Moreover, in the case of natural gas, other factors—such as weather, travel and the immense power needs of artificial intelligence (AI)—may prove to be larger influencers.

Impact on demand varies by region

In fact, to some extent, the tariffs’ impact on energy markets already seems to be dissipating. While sending energy and equity prices reeling the first month of implementation, the tariffs have had seemingly less of an effect on U.S. demand as we have entered middle of the year. The Transportation Security Administration (TSA) reported a record number of travelers in the U.S. going into Memorial Day weekend. 

However, at the same time, these tariffs have been detrimental to oil demand in Asia, particularly in China, as that region bears most of the tariff burdens. The numbers say it all: Chinese refinery run rates moved well below their five-year averages as crude imports dropped substantially. Crude futures also touched the lowest levels since 2021.

Lower oil prices may be achieved

Another big factor has been anticipated production increases. OPEC+ has pledged to increase production over the next several months and is estimated to bring back most of the 2 MMbbl/d cuts from the previous years. At the same time, the Trump administration has promised to lower oil prices. Between the Saudi/OPEC production increases and the tariffs’ impact on oil markets, that goal may be achieved.

On the flip side, the only factors supporting higher oil prices have mostly been geopolitical in nature. These include: the harsh sanctions expected against Iran; the Russia/Ukraine peace talks stalling, which could lead to more sanctions on Russia; and the Israel/Hamas tensions maintaining unrest in the Middle East.

Altogether, the real question going forward will be if the seasonal summer travel demand can take up the slack caused by tariffs and OPEC+. The current consensus is that it’s not likely, and WTI prices are expected to remain in the $58-$65/bbl area. Of course, many “what ifs” remain.

What about green energy?

Partly because of the shift in U.S. presidential administration, green energy is losing its luster. Wind and solar still will be contributing factors, but just not at the subsidized pace seen in the past. That said, there will likely be more solar power sources in the Sunbelt states, and more areas driven by wind-generated power, but now these power sources must be able to stand on their own economically, which should send more demand to the oil and gas sector in the longer term.

Natural gas demand boom

Shifting focus to natural gas, the expansion of AI and greater demand for LNG will be the major drivers supporting prices. That’s as AI expansion is set to double in the next three to five years. It currently pulls 4% of the U.S. power grid, but that figure could move to over 9%. If you add in the expansion of LNG from 11 Bcf/d to 12 Bcf/d of natural gas in the next four to five years, one must wonder where the supply will come from.

However, in the near term, weather has been relatively mild so far in 2025, which is pulling less natural gas supplies. That’s as current production is in the range of 105.2 to 106 Bcf/d, whereas in 2024, the midyear average production was near the 101 BCF/day. And so, we will need to see some above-average temperatures this summer if we are to see prices comfortably over the $4/MMBtu.

While the distant horizon looks bright for natural gas—and likely will be—there is still a lot of time in between. Weather demand will still be a price-driver going forward. As of early June, 2025 has been a bit mild, but weather may change things very quickly.