Ongoing trade wars have put the oil market at the center of attention. On Monday, WTI crude oil experienced a decline, but after losses in the first half of the day yesterday, the market saw a rebound. Currently, a barrel of U.S. crude (WTI) is priced at around $72.5.
The U.S. President has imposed 25% import tariffs on Canada and Mexico (with a one-month delay) and 10% on China. The delay was granted after these countries committed to taking action against drug smuggling at the U.S. border. The lower 10% tariff rate applies specifically to Canadian energy imports, recognizing Canada’s role as the United States’ primary crude oil supplier.
Canada and Mexico: Key Oil Suppliers to the U.S.
In 2024, the United States imported over 4 million barrels of crude oil per day from Canada, accounting for more than 60% of its total oil imports. Meanwhile, Mexico supplied approximately 470,000 barrels per day, making up about 7% of total U.S. imports.
If the tariffs remain in place, U.S. refineries will face difficulties filling the supply gap. While Venezuelan crude is a potential alternative due to its similar quality, Trump has stated he does not intend to purchase oil from Venezuela. In 2023, the U.S. imported 220,000 barrels per day from Venezuela, and if this source is cut off, an additional supply gap would need to be filled.
Other potential alternatives include crude from Brazil or Guyana, which meet U.S. refinery standards due to their sulfur content. However, the key question is how quickly these countries could increase exports to the U.S. and to what extent they could replace Canadian and Mexican crude.
Impact on the Oil Market and Consumer Prices
If U.S. refineries reduce demand for Canadian and Mexican crude, it could lead to market shortages, forcing these companies to cut refining operations. On the other hand, higher import costs would quickly be passed on to consumers, likely causing a sharp increase in gasoline prices in the U.S.—a key driver of inflation.
Following Russia’s invasion of Ukraine, the U.S. significantly increased diesel exports to Europe. If tariffs on Canadian and Mexican oil are enforced, U.S. crude exports to Europe could be drastically reduced, likely leading to supply deficits and rising prices in European markets.
The Market’s Hope: Will Tariffs Be Softened or Canceled?
Markets are optimistic that the tariff postponement signals the potential for negotiations, which could lead to softer tariff measures or even their cancellation. However, at this stage, the delay only postpones the problem rather than resolving it.
The risk of rising inflation is now a global concern, affecting not just the United States but also Europe. This could force the European Central Bank (ECB) and the Federal Reserve (FED) to reconsider their current monetary policies.
By Łukasz Zembik, Oanda TMS Brokers
Source: CEO.com.pl
