3 Things Energy Investors Need to Know About President Trump's Latest Tariff Moves

How much should energy investors worry about the Trump administration’s fast-changing tariff regime? It seems like an important question to ask, but the truth is, it may be focusing on short-term gyrations that really won’t have a huge long-term impact on the energy sector.

When the U.S. Supreme Court recently struck down some of President Donald Trump’s tariffs as unconstitutional, Trump’s response was to enact a global 15% tariff on all goods coming into the U.S. for a limited period (other tariffs not affected by the Court’s ruling also remain in effect). That means companies that operate internationally in any way (including energy companies) need to continue dealing with tariffs.

Here are three things you need to know before you start worrying too much about the administration’s tariff moves.

1. Oil and natural gas prices are the important issue

The real driver of performance in the energy sector is the price of oil and natural gas. These are highly volatile commodities, prone to rapid and material price changes. The geopolitical events unfolding in recent weeks highlight just how quickly oil prices rise and fall. Tariffs are a part of the story, but not the only factor. And tariffs are really not even the largest factor to consider.

Image source: Getty Images.

2. Different companies face different levels of exposure

That said, not all companies are created equal. For example, Devon Energy (DVN +2.69%) is a large U.S.-based energy company. Tariffs on foreign energy supplies won’t have as big an impact on it as, say, such taxes might have on ExxonMobil (XOM +0.14%), which produces oil on a global scale. That said, ExxonMobil’s business spans the entire energy value chain, from producing energy to processing and transporting it. That diversification helps to mitigate the impact of both tariffs and commodity price volatility. Devon Energy, as a pure-play producer, will be greatly affected by commodity prices.

If you want to step away from commodity risk, you could always buy a midstream-focused business like Enterprise Products Partners (EPD +0.73%), which collects fees for moving oil and natural gas around the world. The price of the commodities it transports is less important than demand. Energy demand tends to remain high even when energy prices are low. That said, tariffs could change how oil and gas move around the world, so Enterprise isn’t immune to them.

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3. Energy is vital to the world

All of that said, no country can simply stop using oil and natural gas. Both are vital to the world economy, and without them the world would quickly grind to a halt. And while oil and natural gas are global commodities, there’s really only so many viable options for accessing them. Tariffs may change things at the edges, but they aren’t likely to drastically alter the industry’s long-term operations. Indeed, historically, even all-out wars generally affect oil supplies and prices for only a limited period before energy markets revert to normal.