So much for ‘drill, baby, drill’?

Commodity

Summary:

Despite Trump’s pro-oil stance, US oil production faces decline due to low prices, trade war uncertainty, and OPEC output hikes—hurting drillers but benefiting consumers with falling gas prices.

America’s oil industry is facing immense pressure during Trump 2.0.

Even though President Donald Trump vowed to usher in a period of American energy dominance, the administration’s trade war and OPEC’s production hikes have cast a shadow over the oil patch.

In fact, once-gangbusters US oil production growth is now at risk of grinding to a halt — or even going in reverse.

Hurt by weakening demand and depressed prices, US oil output is now expected to shrink in 2026, S&P Global Commodity Insights projected on Monday. S&P estimates that US oil production will dip to 13.3 million barrels per day in 2026, a 130,000-barrel decline from its 2025 forecast.

It would be just the second time in the past decade that US production fell. The only other time was during the Covid-19 crash, when the world economy ground to a halt and oil prices briefly dropped below zero.

“The US shale oil sector is quite gloomy. They’re battening down the hatches for a storm,” said Bob McNally, president of consulting firm Rapidan Energy Group.

Diamondback Energy told shareholders last week that US onshore oil production has likely peaked and will start to drop due to plunging prices.

“We believe we are at a tipping point for US oil production at current commodity prices,” Diamondback CEO Travis Stice said in a shareholder letter.

Of course, the silver lining for American consumers is that prices at the pump are very much under control. In fact, some analysts expect gas prices will trend even lower in the coming months, an outcome that could help offset potential sticker shock caused by the trade war.

Sky-high tariffs have caused recession fears that have driven oil prices lower. Crude has also been hit by a surprisingly large increase in production from OPEC and its allies.

Trump has repeatedly called for OPEC to ramp up supply, in part to drive down inflation and pile pressure on Russia to end the war in Ukraine.

The ironic part of the gloom and doom in oil country is that Trump’s 2024 campaign was backed enthusiastically by the fossil fuels industry, and the president vowed to send oil production skyrocketing.

McNally, a former White House energy advisor to President George W. Bush, told CNN on Friday that the oil industry “dodged a bullet” because a Trump loss would have meant tougher regulation and less leasing of federal lands and waters.

But cutting red tape and green-lighting permits can’t make up for plunging prices in the short term.

“While the long-term outlook from regulatory and cost perspective is improving vastly over what it would have been had Trump lost,” McNally said, “the president’s priority for lower oil prices is hurting the industry. That’s just true.”

Even though the United States is the world’s biggest oil producer, it’s also most sensitive to price drops. US crude plunged 20% between Trump’s tariff announcement on “Liberation Day” (April 2) and May 5, when it fell to a four-year low of $57.13 a barrel.

Crude has bounced back above $60 but remains at or below the level many drillers require to make money.

In late March, oil executives surveyed by the Federal Reserve Bank of Dallas expressed alarm about the trade war.

“The administration’s chaos is a disaster for the commodity markets,” one exploration and production executive said. “’Drill, baby, drill’ is nothing short of a myth and populist rallying cry. Tariff policy is impossible for us to predict and doesn’t have a clear goal. We want more stability.”

McNally expects US oil prices to plunge into the low- to mid-$40s from late summer and into the fall, causing production growth to grind to a halt. He said if prices fall even further, US oil production “could easily” drop in 2026.

“It’s certainly on the table,” McNally said.

S&P executives warned on Monday that “extreme uncertainty about the future of US trade” and a looming supply surplus are expected to “hobble” US oil production later this year and next.

The firm sharply cut its global oil demand growth outlook for 2025 from 1.25 million barrels per day before the April 2 tariff announcement to 750,000 barrels per day now.

“The Trump administration is creating a regulatory environment that can facilitate oil and gas activity,” said Jim Burkhard, vice president and global head of crude oil research at S&P Global Commodity Insights. “But ultimately, it is the level of oil prices that is the biggest factor in driving US production up or down.”

Cheap oil and weakening production could ultimately cost jobs in the oil patch or even cause financial stress for drillers.

In 2020, when oil prices plunged and production crashed, the oil industry experienced a spike in bankruptcies and layoffs.

However, the oil industry looks more resilient today because of a wave of consolidation in which Big Oil companies with powerful balance sheets gobbled up smaller players.

In any case, the trouble in the oil world is a windfall for many consumers filling up their gas tanks.

The national average price for regular gas fell to $3.15 a barrel on Friday, according to AAA. That’s down sharply from $3.64 a gallon at this point last year and a far cry from the June 2022 record high of $5.02 a gallon.

Cheaper gas prices could help offset potential tariff-driven price increases elsewhere. And they have helped lower the US inflation rate.

Veteran oil analyst Tom Kloza expects gas prices will continue to move lower.

“It’s going to be a cheap summer,” Kloza said.

Source: cnn

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Gerik

Economic

South Korea Faces Steep Slowdown in Economic Growth

On May 11, 2025, the Bank of Korea (BOK) released data showing that South Korea’s real gross domestic product (GDP) shrank by 0.246% in the first quarter of the year compared to the previous quarter. This figure marks the worst performance among 19 of the world’s largest economies that have published Q1 GDP data, including China and all 18 member states of the Organisation for Economic Co-operation and Development (OECD).

This decline reflects a broader deceleration in South Korea’s economic momentum and places the country last in terms of quarterly growth performance, even behind the United States, which posted a more modest contraction of 0.069%.

Domestic Demand Weakens Under Weight of Inflation and Household Debt

Analysts widely attribute the contraction to weakening domestic demand. Rising consumer prices and persistently high levels of household debt have curbed spending power across Korean households. This combination has placed sustained pressure on the retail and services sectors, contributing significantly to the overall decline in output.

Despite the contraction, BOK Governor Rhee Chang Yong cautioned against interpreting the downturn as a reason for immediate monetary easing. He emphasized that while the economy is indeed under pressure, the country is still within a policy cycle of loosening, and any rate cut decisions would need to be carefully timed.

Comparative Performance of Global Economies

In contrast to South Korea's contraction, several other major economies saw positive growth in Q1. Ireland led the pack with a 3.219% expansion, followed by China at 1.2%, Indonesia at 1.124%, and Spain at 0.568%. North American economies also performed moderately well, with Canada growing 0.4%. Among key European economies, Italy expanded by 0.26%, Germany by 0.211%, and France by 0.127%. The GDP figures for Japan and the United Kingdom have not yet been released.

The broad disparity between South Korea’s performance and that of its peers highlights both external competitiveness challenges and internal consumption fragility. The situation raises concerns about South Korea’s resilience in a global context marked by trade volatility, tight monetary conditions, and structural consumer burdens.

Policy Response: Supplementary Budget and Stimulus Measures

In response to the slowdown, both the ruling conservative People Power Party (PPP) and the main opposition Democratic Party (DP) agreed on a supplementary budget worth 13.8 trillion won (approximately USD 10.6 billion), passed on May 1. The Ministry of Finance announced plans to disburse 70% of this budget before July to quickly inject liquidity into the economy.

This fiscal measure underscores a shift toward counter-cyclical stimulus aimed at cushioning domestic demand. It reflects an attempt to balance between monetary restraint—cautiously maintained by the central bank—and proactive government spending to stabilize growth.

South Korea’s Q1 contraction is not merely a statistical outlier but a reflection of deeper structural vulnerabilities, particularly in household consumption. While external demand remains essential, sustained domestic weakness may continue to weigh on future growth prospects. As global economies show varied trajectories, South Korea's policymakers face a complex balancing act between inflation control, debt management, and the need to reinvigorate internal demand without overreliance on external trade cycles.

Source: The Korea Herald

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Adam

Economic

A report published in January 2024 by the US Department of Health and Human Services paints a damning picture: in the United States, drug prices are on average 2.78 times higher than in comparable countries. And up to 3.22 times higher for brand-name drugs.

Why are drugs so expensive?

The US market is largely deregulated. Each manufacturer sets its own prices with retailers, without direct intervention from the government. Since the vast majority of Americans are insured, they are unaware of the real cost of treatment. As a result, healthcare inflation far exceeds general inflation.

Donald Trump deals another blow to Big Pharma_1

Comparison of overall inflation and healthcare inflation

In February, Trump had already signed an executive order imposing greater transparency on healthcare prices. This new text revives an old and controversial project.

The return of an explosive project

In 2020, Trump attempted to impose the "most favored nation" principle, which would refer to the lowest prices charged abroad. At the time, pharmaceutical companies reacted strongly, denouncing foreign interference in US prices. According to them, this policy could cost more than $1 trillion over ten years and harm access to healthcare for the most disadvantaged.

Another argument put forward was the impact on innovation. Lower margins would weaken research, and generic manufacturers could flee the US market if prices became too restrictive.

Foreign laboratories in the firing line

According to a study by Ernst & Young, the US imported $203 billion worth of pharmaceutical products in 2023, 73% of which came from Europe (Ireland, Germany, Switzerland). The sector's trade deficit stood at $103 billion in 2023, rising to $139 billion in 2024. It is one of the country's largest, alongside the automotive and textile industries, which are also being targeted by Donald Trump.

The US market remains the beating heart of the global pharmaceutical industry, accounting for 30-40% of the total market, 45% of sales and 22% of global production. Although the US pharmaceutical industry was quick to respond after the announcement, it is mainly foreign companies that are likely to suffer, given their heavy dependence on the US for their revenues.

Here are a few examples if you would like to know more about the market reaction (the US share of revenue is shown in brackets):

Japan: Takeda (49%), Astellas (42%), Daiichi Sankyo (32%)

Australia: Clinuvel (> 50%), CSL Ltd (50%)

India: Sun Pharma (31%), Cipla (19%), Lupin (35%) — the US accounts for a third of Indian pharmaceutical exports

Belgium: ArgenX (84%), UCB (50%)

France: EssilorLuxottica (42%), Sanofi (50%)

Added to this are a series of worrying signs for the sector: the appointment of a new head of the FDA (considered unfavorable to the industry), threats of specific taxes, and incentives to relocate production.

In a note published on Monday, Luisa Hector and Kerry Holford, analysts at Berenberg, stated: "For the 11 major pharmaceutical companies we cover, more than 40% of US sales go through government-funded channels. Bristol-Myers is the most exposed to price declines, Sanofi the least."

Persistent legal uncertainty

Trump has not detailed how his measure will be implemented. According to Politico, only certain drugs reimbursed by Medicare would be affected initially. And for Chris Meekins, an analyst at Raymond James, "the more dramatic the announcement, the less likely it is to happen," due to the risk of litigation.

Since the Inflation Reduction Act of 2022, Medicare has already been able to negotiate the price of certain very expensive treatments. But according to industry analyst Evan Seigermann, the federal government still does not have the power to set prices in the private sector. Any attempt to expand this power could face opposition from the Republican-controlled Congress.

An industry under pressure

Against this backdrop, investors remain cautious. Trump's desired reform looks difficult to implement, but it is fueling uncertainty about the future of the pharmaceutical industry, both in the US and internationally.

Donald Trump deals another blow to Big Pharma_2

Source: marketscreener

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Michelle Reid

Economic

U.S. President Donald Trump signed a wide-reaching executive order on Monday directing drugmakers to lower the prices of their medicines to align with what other countries pay that analysts and legal experts said would be difficult to implement.

The order gives drugmakers price targets in the next 30 days, and will take further action to lower prices if those companies do not make "significant progress" towards those goals within six months of the order being signed.

Trump told a press conference that the government would impose tariffs on companies if the prices in the U.S. did not match those in other countries and said he was seeking cuts of between 59% and 90%.

"Everybody should equalize. Everybody should pay the same price," Trump said.

Investors were skeptical about the order's implementation, and shares, which had been down overnight on the threat of "most favored nation" pricing, recovered and rose in early morning trade on Monday.

The United States pays the highest prices for prescription drugs, often nearly three times more than other developed nations. Trump tried in his first term to bring the United States in line with other countries but was blocked by the courts.

Trump's drug pricing proposal comes as the president has sought to fulfill a campaign promise of tackling inflation and lowering prices for a host of everyday items for Americans, from eggs to the gas pump.

Trump said his order on drug prices was partly a result of a conversation with an unnamed friend who told the president he got a weight loss injection for $88 in London and that the same injection in the U.S. cost $1,300.

If drugmakers do not meet the government’s expectations, it will use rulemaking to bring drug prices to international levels and consider a range of other measures, including importing medicines from other developed nations and implementing export restrictions, a copy of the order showed.

Trade groups representing biotech and pharmaceutical decried the move.

"Importing foreign prices from socialist countries would be a bad deal for American patients and workers. It would mean less treatments and cures and would jeopardize the hundreds of billions our member companies are planning to invest in America," PhRMA CEO Stephen Ubl said in a statement.

Ubl said the real reasons for high drug prices are "foreign countries not paying their fair share and middlemen driving up prices for U.S. patients."

The order also directs the U.S. Federal Trade Commission to consider aggressive enforcement against what the government calls anti-competitive practices by drugmakers.

"We're all familiar with some of the places where pharmaceutical companies push the limits to prevent competition that would lower their prices," one White House official said, pointing to patent protections and deals drugmakers make with generic companies to hold off on cheaper copies.

The executive order is likely to face legal challenges, particularly for exceeding limits set by U.S. law, including on imports of drugs from abroad, said health policy lawyer Paul Kim. "The order's suggestion of broader or direct-to-consumer importation stretches well beyond what the statute allows," Kim said.

The FTC has a long history of antitrust enforcement actions against pharmaceutical and other healthcare companies. Trump last month ordered the FTC to coordinate with other federal agencies to hold listening sessions on anticompetitive practices in the drug industry. On Monday, he was expected to ask the FTC to consider taking enforcement action, sources said.

"President Donald Trump campaigned on lowering drug costs and today he’s doing just that. Americans are tired of getting ripped off. The Federal Trade Commission will be a proud partner in this new effort," said FTC spokesperson Joe Simonson.

Shares of major drugmakers, after initially falling during premarket trading, rallied on Monday, despite the wide-ranging order. Shares of Merck (MRK.N), opens new tab rose 5.2%, while Pfizer (PFE.N), opens new tab gained 3.2% and Gilead Sciences (GILD.O), opens new tab was up 6.7%. Eli Lilly (LLY.N), opens new tab, the world's largest drugmaker by market value, rose 2.4%.

The executive order differed from what drugmakers had been expecting. Four lobbyist sources told Reuters they were expecting an executive order that called for "most favored nation" pricing on a subset of Medicare drugs.

"Implementing something like this is pretty challenging. He tried to do this before and it was stopped by the courts," said Evan Seigerman, analyst at BMO Capital Markets.

The White House officials did not specify any targets.

Trump's order also directs the government to consider facilitating direct-to-consumer purchasing programs that would sell drugs at the prices other countries pay.

It also orders the Secretary of Commerce and other agency heads to review and consider actions regarding the export of pharmaceutical drugs or ingredients that may contribute to price differences. The Commerce Department did not immediately respond to a request for comment.

Source: Reuters

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Gerik

Economic

China–U.S. Trade War

Washington Reaffirms Commitment to Economic Engagement with China

At a press conference in Geneva on May 12, US Treasury Secretary Scott Bessent reaffirmed that the United States has no intention of severing economic ties with China. Instead, he emphasized the importance of establishing a more balanced and sustainable trade relationship. His remarks followed an intense week of negotiations that resulted in a landmark joint statement to ease tariff tensions over the next 90 days.

Bessent clarified that both delegations agreed decoupling is undesirable. He stated, “What we’ve seen with these extremely high tariffs is tantamount to an embargo. No one wants that. What we want is trade—fair and reciprocal trade.”

New Tariff Agreement Marks Strategic Pause in Trade Tensions

As outlined in the joint statement released on May 12, both countries have committed to significant reciprocal reductions in tariffs. Starting May 14, the US will lower its tariffs on Chinese goods from 145% to 30%, while China will reduce its import duties on American goods from 125% to 10%. This 115-percentage-point rollback will remain in effect for the initial 90-day period.

Additionally, China has pledged to suspend non-tariff retaliatory measures it imposed since April 2. These included placing rare earths under export controls, launching anti-dumping investigations against DuPont, and blacklisting a range of US defense and tech companies.

Under the new terms, companies previously targeted in the April countermeasures will be removed from China’s restricted lists, and the investigation into DuPont will be suspended. However, punitive actions announced before April 2—including those involving Google and earlier sanctions—will remain in place, creating a partial détente rather than a full rollback.

Chinese Officials Welcome Dialogue-Based Resolution Mechanism

At a parallel press event, Chinese officials described the agreement as a “significant step” toward enhancing mutual cooperation. The Ministry of Commerce acknowledged that elevated US tariffs had seriously disrupted both bilateral trade flows and global economic order. The joint statement, they noted, reflects a shared desire to resolve disputes through dialogue and consultation, and lays the groundwork for deeper cooperation.

A dedicated mechanism for ongoing consultation on trade and economic matters will be established during the 90-day pause. This suggests that both countries aim to use this window not just for temporary relief, but to redesign a more predictable and mutually acceptable framework for long-term engagement.

Lingering Tariffs and Sectoral Disruptions Signal Continued Risk

Despite progress, key issues remain unresolved. The US will retain a 20% tariff on products linked to fentanyl-related chemicals—an area of national concern—while several other punitive measures remain active. The partial nature of the agreement highlights that this is a fragile truce rather than a comprehensive resolution.

Trade disruptions have already inflicted measurable damage. US GDP recorded its first quarterly contraction since 2022, driven in part by a surge in pre-tariff inventory accumulation. On the Chinese side, exports to the US plummeted last month, placing renewed pressure on its manufacturing sector. April manufacturing activity contracted at its fastest pace in 16 months, prompting Beijing to accelerate fiscal stimulus and liquidity support.

The scale of the disruption was further underscored by logistics data: on May 9, no ships from China docked at two major West Coast US ports for 12 consecutive hours—a highly unusual event not seen since the height of the COVID-19 pandemic.

The Geneva negotiations represent a turning point in US-China economic relations—not as a return to past normalcy, but as a recalibration of expectations. While geopolitical competition continues to shape the broader relationship, this round of diplomacy signals recognition on both sides of the high economic cost of prolonged confrontation. The language used by US officials marks a strategic retreat from decoupling rhetoric, in favor of restoring a baseline for predictable economic exchange. Whether this 90-day reprieve can evolve into structural realignment will depend on follow-through, not only in tariff policy but in restoring trust across key sectors.

Source: CNN

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Adam

Economic

Federal Reserve Governor Adriana Kugler said Monday that steeper tariffs will drive prices higher, acting to push down incomes and lower economic growth.

“Although higher tariffs on U.S. imported goods may affect our macroeconomy through many channels…I think they will primarily act as a negative supply shock, raising prices and decreasing economic activity,” Kugler said in a speech in Dublin, Ireland.

Kugler’s comments come even as the US and China have agreed to de-escalate and slash tariff rates by 115 percentage points for 90 days as both sides discuss fairer trade between the two countries.

The move will drop American tariffs on Chinese goods, which currently run as high as 145%, to 30% and slash China's retaliatory duties from 125% to 10%.

“Trade policies are evolving and are likely to continue shifting, even as recently as this morning,” she noted.

Given what Kulger sees as upside risks to inflation and a "somewhat restrictive" level on interest rates now, she said she supported holding rates steady at the policy meeting last week.

"Ultimately, I see the U.S. as likely to experience lower growth and higher inflation," she said.

Kugler is the latest central bank policymaker to warn about higher inflation, elevated unemployment, and slower economic growth this year, following similar comments Friday from Federal Reserve governor Michael Barr and New York Fed president John Williams.

The comments from the policymakers highlight the dilemma for the central bank as it tries to weigh both sides of its mandate — stable prices and maximum employment — at a time when the true effects of White House trade policies on the economy are still unknown.

Their warnings also echo observations recently expressed by Fed Chair Jerome Powell, who on Wednesday reiterated that he would wait for greater clarity on the impact of Trump's tariffs before deciding on a path for monetary policy going forward.

All Fed officials on Wednesday voted unanimously to maintain the Fed's benchmark interest rate in the range of 4.25% to 4.5%, a mark reached at the end of 2024 after cutting rates by a full percentage point last fall.

The White House is intensifying its pressure on the Fed to consider lowering rates to cushion any future economic slowdown.

Trump himself has repeatedly called for the Fed to ease its policy stance and did so again in the Oval Office on Thursday, saying Powell didn't want to lower rates because "he's not in love with me." He also resurfaced his contention that Powell has a history of moving too late on monetary policy.

"'Too Late' Jerome Powell is a FOOL, who doesn’t have a clue," Trump said in a separate social media post on Thursday.

The 90-day pause announced by the US and China on Monday does alleviate some pressure, and investors responded by sending stocks higher.

But Kugler said changes in trade policy appear likely to generate significant economic effects even if tariffs stay close to the currently announced levels, and that uncertainty associated with tariffs has already impacted the economy through front-loading, sentiment, and expectations.

The Fed governor said that while uncertainty remains about the ultimate level of the average tariff rate, currently announced average tariffs are still “much higher” than in the past many decades.

Kugler warned if tariffs remain significantly larger relative to earlier in the year, the same is likely to be true for the economic effects, which she says would include higher inflation and slower growth.

Given what she expects to be price increases from tariffs, she said she expects incomes adjusted for inflation will fall, and businesses operating costs will rise, which will lead consumers to demand fewer final goods and services and firms to demand fewer inputs.

Over time, Kugler said there could also be significant effects on productivity. As firms adjust to the higher parts costs and lower demand, she said they could cut back on capital investment and shift to a less-efficient combination of parts.

In the near term, Kugler expects higher import costs will raise prices for both consumer goods and inputs to production. While she says imported goods only represent 11% of GDP, she warned tariffs on so-called intermediate goods – parts used to make products—like aluminum and steel could impact the prices of many goods and services.

Kugler referenced comments from the Dallas Fed’s survey of Texas business executives, which found that 55 percent of businesses expect to pass through most or all of the costs from higher tariffs to customers.

Of those expecting to pass on costs, 26 percent expect to pass through the higher tariff cost upon the announcement of tariffs, and 64 percent expect this pass-through to occur within the first three months after the tariffs take effect.

Kugler noted that suggests to her that price increases may be occur soon.

On inflation, Kugler said she has taken note of the increase in longer-term inflation expectations from the Michigan survey, which reached the highest level since June 1991.

“With inflation and employment potentially moving in opposite directions down the road, I will closely monitor developments as I consider the future path of policy,” she said.

Source: finance.yahoo

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Devin

Central Bank

The European Central Bank is tipped to slash borrowing costs three more times this year, bringing its key deposit rate down to 1.5% by the end of 2025, according to analysts at Deutsche Bank.

But in a note to clients, the brokerage warned that there are "two-sided risks" to this estimate.

In one scenario, the implementation of partially-delayed U.S. tariffs leads to a "growth shock" in the eurozone, persuading the ECB to bring policy rates below the 1.5% level.

Another outcome revolves around broader economic "resilience" stopping an ongoing ECB rate easing cycle before borrowing costs dip to 1.5%.

"Our baseline continues to have the ECB cutting rates by 25 basis points in June, September and December," the analysts wrote.

They added that, due to ructions in stock and bond markets after Trump first announced his punishing tariffs in early April and the possibility that the tariffs could be "disinflationary" in the eurozone, the ECB recent easing cycle may continue and the 1.50% terminal rate might be reached in September.

Last month, the ECB cut interest rates as widely expected in an attempt to boost a eurozone economy that had been struggling even before the unveiling of U.S. President Donald Trump’s sweeping "reciprocal" tariffs.

Policymakers have also noted that both headline and core inflation declined in March, while services sector price gains have also cooled markedly over recent months -- potentially suggested that inflation could settle at around the ECB’s 2% medium-term target on a sustained basis.

The central bank slashed its benchmark deposit rate by 25 basis points to 2.25%, the seventh reduction in a year, while the interest rate on its main refinancing operations fell to 2.40% and its marginal lending facility dropped to 2.65%.

The eurozone economy has been building up some resilience against global shocks, the central bank said, but the outlook for growth has deteriorated owing to rising trade tensions.

Although Trump has postponed his elevated tariffs on the European Union, which includes many eurozone countries, other levies remain in place, such as universal 10% duties and tariffs on items like steel, aluminum and autos.

"Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions," the ECB said. "These factors may further weigh on the economic outlook for the euro area."

ECB officials have estimated that growth across the 20 countries that share the euro currency could fall by half a percentage point this year if the tariffs are eventually imposed.