Crude oil prices saw an uptick at the start of the week following the U.S. President’s decision to impose 25% tariffs on most Canadian and all Mexican exports to the United States. This announcement marked a significant shift in trade relations and sparked immediate reactions across global markets, with oil prices climbing after two consecutive weeks of losses.
Impact on Oil Prices
By mid-morning in Asia, Brent crude was priced at $76.16 per barrel, while West Texas Intermediate (WTI) was trading at $73.75 per barrel, showing gains as a result of the tariff decision. The new tariffs created a ripple effect, influencing the energy markets, with analysts indicating that the disruption in supply chains would have a lasting impact on oil prices, particularly in the U.S. sector. Experts noted that the tariffs would lead to a short-term rise in prices due to the interruption in refinery feedstock supply.
Canada’s Retaliation and Market Reactions
In response, Canada swiftly announced its own set of tariffs on U.S. imports, amounting to over $100 billion. Some of these tariffs would take effect within a matter of days, while others would follow in three weeks. Prime Minister Justin Trudeau addressed the situation, emphasizing the potential negative effects on American consumers, highlighting the risks to jobs in U.S. auto assembly plants and the anticipated rise in costs for everyday goods such as groceries and gas.
Despite acknowledging the impact on consumers, the U.S. President remained steadfast, framing the tariffs as a necessary short-term measure to secure long-term benefits for the United States. He asserted that while there might be some immediate challenges, the broader goal was to address trade imbalances and secure better deals for the U.S. economy.
Short-Term Effects on Refining and Oil Prices
Energy analysts such as Saul Kavonic from MST Marquee in Australia pointed out that the tariffs would likely disrupt refinery feedstock supply in the U.S., which in turn could push oil prices higher. While this seemed bullish for oil in the short term, ING’s experts, Warren Patterson and Ewa Manthey, tempered expectations by noting that the bullish effect would be limited. They pointed out that U.S. refiners would face higher feedstock prices, which would eventually be passed on to consumers. However, they also noted that the full cost of the tariffs might not be borne by the U.S. refiners or consumers in the long run.
In 2023, nearly 97% of Canada’s oil exports went to the U.S., and with limited alternative markets for Canadian crude oil, analysts expect to see prices for West Canada Select oil decrease, widening the differential with WTI. This shift indicates a complex balancing act for the global oil market in response to the evolving trade landscape between the U.S. and Canada.
As oil prices continue to rise in the wake of the tariff announcement, market observers are closely monitoring the ongoing trade tensions and their potential long-term effects on global oil dynamics. While the immediate impact on oil prices is evident, the broader implications for the U.S.-Canada trade relationship and its influence on global energy markets remain uncertain.
