Crude oil futures saw an uptick in trading on Monday morning following the announcement by US President Donald Trump that tariffs would be imposed on Canada, Mexico, and China starting February 4.
As of 9:56 am on Monday, April Brent oil futures were at $76.25, up by 0.77%, while March crude oil futures on WTI were at $73.84, up by 1.81%. On the Multi Commodity Exchange (MCX), February crude oil futures were trading at ₹6447 and March futures at ₹6397, both showing gains of around 1.5%.
President Trump issued executive orders on Saturday imposing tariffs of 25% on imports from Canada and Mexico, and 10% on imports from China. These tariffs are set to go into effect on February 4. Additionally, a 10% tariff was imposed on energy imports from Canada, and a 25% tariff on energy imports from Mexico. In response, Canada and Mexico announced plans to impose similar tariffs on imports from the US, while China stated that it would take the matter to the World Trade Organization.
According to Warren Patterson, Head of Commodities Strategy at ING Think, and Ewa Manthey, Commodities Strategist, Canada is a major supplier of crude oil to the US, with the US importing around 4 million barrels a day from Canada, accounting for 61% of total imports. This heavier crude is preferred by many US refineries, particularly in the Mid-West. The announcement of tariffs has led to stronger trading of WTI on Monday.
The experts noted that while tariffs could result in higher feedstock prices for US refiners, the full cost is unlikely to be absorbed by them or consumers. This could lead to a widening differential between WTI and Canadian oil prices, as most of the Canadian crude is exported to the US.
They also pointed out the limited export infrastructure for Canadian oil, with only 890,000 barrels a day of pipeline capacity to the West Coast. While tariffs may prompt increased usage of this pipeline, the majority of Canadian crude will still flow to the US.
Overall, escalating trade tensions could have a negative impact on global growth and risk assets. The strength of the US dollar may also pose challenges for oil prices and the broader commodities complex.
In the commodities market, natural gas futures and contracts for kapas and castorseed also saw positive movements on Monday, reflecting the overall market dynamics.
The article was published on February 3, 2025.
