Oil prices soar as Trump tariffs fuel supply disruption fears
Investing.com – Oil prices soared Monday following US President Donald Trump's announcement of sweeping tariffs on imports from Canada, China, and Mexico, raising fears of supply disruption.
At 08:50 ET (13:50 GMT), Brent Oil Futures were 1.7% higher at $76.98 a barrel, and Crude Oil WTI Futures expiring in March jumped 2.6% to $74.40 a barrel.
Trump tariffs stoke supply disruption fears
The new tariffs, effective Tuesday, impose a 25% levy on Canadian and Mexican goods and a 10% tariff on Chinese imports. Canadian energy products were also among the targeted items with a 10% levy.
The US imports approximately 4 million barrels of Canadian oil and nearly 500,000 barrels of Mexican oil daily. The newly imposed tariffs are expected to increase costs for US refiners, especially those in the Midwest and Gulf Coast regions, potentially leading to higher fuel prices and potential production cuts.
"Canada is a key supplier of crude oil to the US, with the US importing around 4m b/d from Canada (61% of total imports)," said analysts at ING, in a note. "This crude oil is a heavier crude, which many US refineries are configured to run on, particularly in the Mid-West."
In response to the US levies, Canada has announced plans to implement C$155 billion in retaliatory tariffs on American goods. Investors are also bracing for potential countermeasures from China, and Mexico which could further destabilize global markets.
The potential for escalating trade tensions adds a layer of uncertainty to the global economic outlook, with oil markets remaining particularly sensitive to geopolitical developments.
Analysts see upcoming volatility, production cuts
Analysts believe that the short deadline for the imposition of tariffs offers very little time to reach a deal before the implementation.
"This (tariffs) could have major implications for the oil market," ANZ analysts said in a note, citing that Valero Energy Corporation (NYSE: VLO ), the third biggest US refiner sees the industry cutting production if tariffs hit oil imports.
"The main concerns are his (Trump's) foreign policies and how they may increase the risk of supply disruptions," ANZ analysts stated.
"W e expect volatility around both crude oil and natural gas to come from tariffs," UBS analysts said in a note.
UBS analysts noted that exposed Canadian and U.S. energy stocks have already reflected some concern around tariffs. "However, we expect some volatility as the 10% is lower than a potential 25% tariff," they added.
OPEC to keep to output plan
OPEC+ is likely to adhere to current plans to raise output gradually from April when a panel of top ministers meets on Monday, despite President Trump urging OPEC to lower prices.
The Organization of the Petroleum Exporting Countries and allies led by Russia, or OPEC+, is cutting output by 5.85 million barrels per day, equal to about 5.7% of global supply, agreed in a series of steps since 2022.
In December, OPEC+ extended its latest layer of cuts through the first quarter of 2025, pushing back a plan to begin raising output to April. The extension was the latest of several delays due to weak demand and rising supply outside the group.
(Ayushman Ojha contributed to this article.)