Oil Fluctuates as Trump Considers Canada-Mexico Tariffs, Crude Inclusion Uncertain
West Texas Intermediate (WTI) hovered around $73 per barrel amid uncertainty over whether President Donald Trump will include crude oil in his planned tariffs on imports from Canada and Mexico.
Trump has threatened to impose a 25% levy on goods from the neighboring countries, including China. However, he has yet to specify whether crude oil will be included in the tariffs.
The possible inclusion of crude has raised concerns about potential market disruptions. Canada exports approximately four million barrels of crude to the US daily, which could impact Midwest refiners that rely heavily on Canadian imports.
Valero Energy Corp., the third-largest US fuel producer, has indicated that refineries may reduce production if tariffs target oil imports. Canadian crude prices and premiums for gasoline and diesel have also been volatile in recent weeks due to the tariff uncertainty.
Analysts at Goldman Sachs warn that a 25% tariff on Canadian oil "would likely initially raise gasoline prices in the US Midwest and eventually weigh on crude prices globally, especially in Canada."
Despite the tariff uncertainty, crude oil is still projected to experience a modest gain in January. However, the potential impact of tariffs on demand and supply dynamics could temper price increases.
OPEC, which meets next week to review its production policy, is expected to maintain its current strategy of gradually increasing output from April.
Trump has indicated he may exempt crude from the tariffs based on oil prices, saying, "We don't need the products that they have."
Canada and Mexico have expressed readiness to retaliate, potentially escalating the dispute. Canada has prepared a list of US products worth approximately $105 billion for potential tariffs, including strategic commodities like oil.
"The US will be more impacted from 25% tariffs, and it goes against Trump's plan to reduce oil prices," said Soni Kumari, a commodity strategist at ANZ Group Holdings Ltd. "We expect oil price to trade in a tight range until the market gets clarity."