Crude Oil Futures Volatile in Wake of Trump Tariffs

Crude Oil Futures Volatile in Wake of Trump Tariffs
Crude oil futures are experiencing volatility, Li Xing, Financial Markets Strategist Consultant to Exness, highlighted.
Image by Alones Creative via iStock

Crude oil futures are experiencing volatility, initially rebounding after U.S. President Donald Trump announced tariffs on Canada and Mexico, raising concerns about potential disruptions to oil supply from these major U.S. suppliers.

That’s what Li Xing, Financial Markets Strategist Consultant to Exness, stated in a market analysis sent to Rigzone on Monday, adding that “the tariffs could impact U.S. refineries that rely on heavier crude grades, creating supply uncertainty that may support global crude prices in the short term”.

Xing noted, however, that “these gains could be limited by fears of weakening fuel demand, especially as global economic growth faces pressure from trade tensions with China and the European Union”.

“While the tariffs may cause inflationary pressures, they could also dampen global demand for crude due to higher costs,” Xing warned in the analysis.

“Meanwhile, despite external pressure from Trump, OPEC+ is likely to maintain its production plans,” Xing added.

“Traders will continue to monitor developments in U.S. trade policies and oil production levels, as increases in production from the U.S. or OPEC could weigh on oil prices,” Xing went on to state.

In a report sent to Rigzone by Standard Chartered Bank Commodities Research Head Paul Horsnell on Monday, analysts at the bank, including Horsnell, highlighted that the U.S. “is imposing tariffs of 25 percent on energy flows from Mexico and 10 percent on flows from Canada”.

“Flows facing tariffs represent 44 percent of U.S. oil product imports, 69 percent of crude oil imports, and 81 percent of heavy crude oil imports,” the analysts noted in the report.

“We think Mexico’s exports to the U.S. are likely to all but cease, with oil being rerouted into Asia and Europe,” they added.

“While Canadian producers may have to bear most of the tariff on flows into other areas, the situation of Canadian exports of heavy crude oil into the Midwest is more nuanced,” they continued.

“This market is close to a bilateral monopoly, with neither producers nor refiners having easy alternatives; we expect tariff incidence for these flows to be roughly equally spread, with refiners also having to cut runs due to the loss of refinery optimization,” the analysts went on to state.

In a report sent to Rigzone by the Skandinaviska Enskilda Banken AB (SEB) team on Monday morning, which looked at Trump’s tariffs, Bjarne Schieldrop, the chief commodities analyst at the company, said “increased frictions in logistics of crude transportation and refining of products often implies higher prices”. 

“The first-round effects on crude and products are thus bullish on the margin. The second-round effects over a bit of time are however negative as they are negative on GDP growth, on oil demand and finally on prices,” he added.

“If Trump-goals of change versus Mexico and Canada are achieved, then these tariffs could possibly be reversed sooner rather than later and suddenly the second-round effects are not so dire after all,” he continued.

In an oil market update sent to Rigzone on Monday by the Rystad Energy team, Rystad Energy Global Head of Commodity Markets - Oil, Mukesh Sahdev, said, “OPEC+ is facing a new challenge with President Trump’s tariffs on major crude suppliers, which could disrupt global oil demand and production”.

“While the group may unwind its production cuts as announced in the second quarter to manage market stability, tariffs on Canada and Mexico could force both countries to redirect crude, impacting U.S. refineries and leading to potential price hikes,” he added.

Sahdev said OPEC+ “is likely to act cautiously, balancing its efforts to stabilize prices while also dealing with geopolitical tensions”.

“As Canada heads into an election, its likely hard stance in retaliation could further complicate efforts, requiring OPEC+ to put in extra effort to ensure balance in the market,” he warned.

Rigzone has contacted the Trump transition team, the White House, the U.S. Department of Energy (DOE), Global Affairs Canada, Mexico’s ministry of foreign affairs, and the American Petroleum Institute (API), for comment on Xing’s analysis, the reports from Standard Chartered and SEB, and Rystad’s market update. Rigzone has also contacted OPEC for comment on Xing’s analysis and Rystad’s update. At the time of writing, none of the above have responded to Rigzone yet.  

To contact the author, email andreas.exarheas@rigzone.com


What do you think? We’d love to hear from you, join the conversation on the Rigzone Energy Network.

The Rigzone Energy Network is a new social experience created for you and all energy professionals to Speak Up about our industry, share knowledge, connect with peers and industry insiders and engage in a professional community that will empower your career in energy.


MORE FROM THIS AUTHOR
Andreas Exarheas
Editor | Rigzone