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Market minute: Drill, baby, drill and the 25% tariffs on steel and aluminum

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For the most part, the current multifront trade war has been more sound than fury.

But on Wednesday, one of those tariffs—the 25% levy on steel and aluminum products—took effect, spurring retaliation from Canada and Europe.

One can see the shape of the cost increases to come in the spot price of 5.5-inch diameter North American steel pipe, which has soared more than 20% over the past month.

Spot price of steel pipe

Those pipes are used by drillers to extract oil from the ground.

Given falling oil prices—West Texas Intermediate hovered around $67 a barrel on Thursday—and the rising cost of materials, the breakeven price of oil for producers is increasing.

Read more of RSM’s insights on the economy and the middle market.

And when drillers face a higher breakeven price, the incentive to engage in speculative exploration declines.

Those price increases, induced by trade taxes, will adversely impact production curves in a manner that is not oil business friendly.

The 25% increase in steel and aluminum tariffs that have been implemented are not exactly aligned with drill baby drill.

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About Joseph Brusuelas

@JoeBrusuelas

Joe Brusuelas, “chief economist to the middle market,” is the preeminent voice championing issues and policies facing midsize companies in the United States and around the world. An award-winning economist, Brusuelas has more than 20 years’ experience analyzing U.S. monetary policy, labor markets, fiscal policy, international finance, economic indicators and the condition of the U.S. consumer.

A member of the Wall Street Journal’s forecasting panel and the UCLA Anderson School of Management's Board of Directors, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions. He also frequently offers his insights on the U.S., Canadian and global economies in the financial media. In 2020, he was named one of the 100 most influential economists by Richtopia. In December 2023, Brusuelas and the economics team were recognized on Bloomberg's list of Best Bond Forecasters after correctly predicting where the benchmark Treasury would end the year.

Before joining RSM in 2014, Brusuelas spent four years as a senior economist at Bloomberg L.P. and the Bloomberg Briefs newsletter group, where he co-founded the award-winning Bloomberg Economic Brief. Earlier in his career, he was a director at Moody's Analytics covering the U.S. and global economies for the Dismal Scientist website. He also served as chief economist at Merk Investments L.L.C. and chief U.S. economist at IDEAglobal.

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