Oil Fluctuates as Mexico Tariffs Delayed, Demand Concerns Linger

Oil prices saw volatility after the US President postponed tariffs on Mexico by a month, with investors weighing the potential impact on global economic growth amid concerns over supply constraints.

Mexico Tariff Delay

West Texas Intermediate (WTI) futures retreated from earlier gains to trade below $73 per barrel after Mexican President Claudia Sheinbaum announced a one-month delay on tariffs. President Donald Trump also discussed a potential deal with Canadian Prime Minister Justin Trudeau.

US Supply Demand

WTI futures initially spiked as much as 3.7%, signaling increased demand for US crude to offset any potential reduction in the 4 million barrels per day imported from Canada. However, declining equity markets and a stronger dollar reflected investor concerns about the impact of the trade war on the global economy.

Refined Product Premiums

Warren Patterson, head of commodities strategy at ING Groep NV, noted the tariffs' supportive effect on crude oil and refined product prices. However, he cautioned that global growth fears could trigger a risk-averse move. In addition to Canadian imports, the US also imports 500,000 barrels of crude daily from Mexico.

Midwest and Cushing Impact

The tariffs are expected to increase costs for refiners, particularly those in the Midwest that rely heavily on Canadian heavy crude. The impact will also extend to the Cushing, Oklahoma storage hub, which plays a key role in pricing US crude futures, and to the Gulf Coast, where Mexican supplies will face a 25% levy.

OPEC No-Change

Despite Trump's push, the OPEC+ alliance maintained its current production plans during a Monday review meeting. Irving Oil Ltd., a Canadian refiner that exports most of its fuels to the US, has already begun raising prices.

Refiner Vulnerability

Amarpreet Singh of Barclays highlighted the interdependence between Canadian producers and Midwest refiners, emphasizing the limited alternative options. However, he suggested that refiners have greater flexibility than producers due to reduced midstream constraints.