Oil candidates, Alberta, Canada
Norm Betts | Bloomberg | Getty Images
Oil prices are likely to fall in the longer run after the original jump following President Donald Trump’s implementation of hefty tariffs on Canada, Mexico and China, said industriousness watchers.
Over the weekend, Trump followed through on his long-threatened 25% tariffs on imports from Canada and Mexico, as clearly as a 10% duty on goods from China. Energy resources from Canada will be subject to a lower 10% toll.
The U.S. West Texas Intermediate rose 1.75% to $73.8 per barrel, while U.S. gasoline futures also climbed. RBOB Gasoline approaches were last up 2.81% at $2.11 per gallon. International Brent crude climbed 0.71% to $76.21 per barrel.
Conforming 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, take in 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 in year, while Mexico accounted for about 7% in the same period.
While crude markets will see turbulent prices and consumers will be forking out more for gasoline and diesel costs in the near term, the spike is only momentary, oil watchers told CNBC.
“While the initial move on crude oil is upward, a cycle of tariffs and retaliatory actions by Canada, Mexico, China and possibly others in the future could lead to a worldwide recession, causing oil prices to plummet,” Andy Lipow, President of Lipow Oil Associates chew out tattle oned 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 deviate their volumes to Europe and Asia, Lipow added. Meanwhile, U.S. refiners will be looking to process more tame crude oil while seeking Middle East alternatives.
Canada to bear the brunt
Both Canada and Mexico prepare limited spare refining capacity or alternative export routes, and the tariffs will likely push oil producers in both countries into souse price discounts, said Saul Kavonic, head of energy research at MST Marquee.
Canadian oil producers will long run bear the brunt of the tariffs’ burden with a $3 to $4 per barrel discount on Canadian crude given the circumscribed alternative export markets, Goldman Sachs wrote in a note dated Sunday.
In the medium term, Goldman’s analysts also surmise that broad tariffs will impact global GDP as well as oil demand, weighing down oil prices.
Additionally, wide-ranging oil prices could drop further after the next quarter as tariffs worsen the demand picture and OPEC+ cows increasing pressure from Trump to reverse production cuts, said Kavonic. Trump recently stated that he is exhorting 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 petition. OPEC+ has been withholding 2.2 million barrels per day from the global market to stem falling prices. In December, the assemble decided to extend its production cuts through at least March 2025 before phasing them out gradually across the course of a year.