Trump’s Tariffs on Canada, Mexico, and China Shake Global Oil Market

Key Highlights

1. Crude Oil Prices Surge After Tariff Announcements
   • Brent at $76.25 (+0.77%), WTI at $73.84 (+1.81%), MCX crude up 1.53%.
2. Canada & Mexico Retaliate Against US Tariffs
   • Canada supplies 61% of US crude imports; alternatives remain limited.
3. Long-Term Price Drop Expected Amid Market Adjustments
   • Tariff-induced supply shifts may weaken the global oil demand outlook.
4. OPEC+ Under Pressure to Reverse Production Cuts
   • Trump urges Saudi Arabia to lower oil prices; OPEC+ response pending.

Oil Prices Jump as Trump Imposes Tariffs on Key Suppliers

• Crude oil futures traded higher on Monday morning after the US President, Donald Trump, imposed tariffs on Canada, Mexico, and China, which will come into effect on February 4.
• At 9.56 am on Monday, April Brent oil futures were at $76.25, up by 0.77 percent, and March crude oil futures on WTI (West Texas Intermediate) were at $73.84, up by 1.81 percent. February crude oil futures were trading at ₹6447 on Multi Commodity Exchange (MCX) during the initial hour of trading on Monday against the previous close of ₹6350, up by 1.53 percent, and March futures were trading at ₹6397 against the previous close of ₹6304, up by 1.48 percent.

US Refiners Face Higher Costs Amid Tariff Fallout

• In three executive orders on Saturday, Trump imposed 25 per cent tariffs on imports from Canada and Mexico, and 10 per cent on imports from China. These tariffs will come into effect on February 4. However, he imposed 10 per cent tariff on energy imports from Canada, and 25 per cent on energy imports from Mexico. 
• In reply to these tariffs, Canada and Mexico said they would impose similar tariffs on imports from the US. China said it will approach the World Trade Organisation. 
• In their Commodities Feed for Monday, Warren Patterson, Head of Commodities Strategy of ING Think, and Ewa Manthey, Commodities Strategist, said Canada is a key supplier of crude oil to the US, with the US importing around 4 million barrels a day from Canada (61 per cent of total imports). 
• This crude oil is a heavier crude, which many US refineries are configured to run on, particularly in the Mid-West. Given the importance of Canadian oil to the US, it is not surprising to see that WTI is trading stronger on Monday morning, they said. 
• There is 890,000 barrels a day of pipeline capacity (Trans Mountain pipeline) from Alberta to the West Coast of Canada, allowing Canadian crude to be exported to other markets.

Retaliatory Tariffs and Supply Diversions Reshape Global Oil Trade

• Oil prices are likely to fall in the longer run after the initial jump following President Donald Trump's implementation of hefty tariffs on Canada, Mexico and China, said industry watchers. 
• Over the weekend, Trump followed through on his long-threatened 25% tariffs on imports from Canada and Mexico, as well as a 10% duty on goods from China. Energy resources from Canada will be subject to a lower 10% tariff.
• According to the latest data from the U.S. Energy Information Administration, America's imports of Canadian crude oil reached a record 4.3 million barrels per day in July 2024, following the expansion of Canada's Trans Mountain pipeline. 
• Canada made up about 62% of all U.S. crude oil imports in the first 10 months of last year, while Mexico accounted for about 7% in the same period.
• While crude markets will see higher prices and consumers will be forking out more for gasoline and diesel costs in the near term, the spike is only temporary, oil watchers told CNBC. 
• The tariffs have not resulted in any oil supplies being taken off the market, and will result in a redistribution of supplies as Mexico and Canada look to divert their volumes to Europe and Asia, Lipow added. Meanwhile, U.S. refiners will be looking to process more domestic crude oil while seeking Middle East alternatives.

OPEC+ Faces Pressure as Market Braces for Potential Oversupply

• Global oil prices could drop further after the next quarter as tariffs worsen the demand picture and OPEC+ faces increasing pressure from Trump to reverse production cuts, said Kavonic. Trump recently stated that he is urging Saudi Arabia and OPEC to lower oil prices. 
• The oil cartel, which is slated to meet on Monday, has yet to respond to Trump's request. OPEC+ has been withholding 2.2 million barrels per day from the global market to stem falling prices. In December, the group decided to extend its production cuts through at least March 2025 before phasing them out gradually over the course of a year.