Following U.S. President Donald Trump’s decision to slap tariffs on imports from China, Canada, and Mexico, oil prices increased on Monday. Fears of supply disruptions and inflationary pressure have been raised by the action, which includes a 10% tariff on energy imports from Canada and a 25% levy on the majority of commodities from North American trading partners.
The tariffs, which are scheduled to go into effect on February 4, have rocked the financial markets and sparked worries about how they may affect international trade and economic stability. Despite the initial spike in oil prices, analysts are still split over the long-term effects, especially for consumers and the US energy industry.
Oil Prices Climb Amid Fears of Supply Disruptions
U.S. West Texas Intermediate (WTI) increased by 1.88% to $73.89 after hitting $75.18 earlier in the day, while Brent crude futures increased by 1.03% to $76.45 a barrel, hitting an intra-day high of $77.34. Following worries that taxes on energy imports from Canada, the country’s main oil supplier, would cause supply chain disruptions and raise refining costs, prices have surged.
According to the U.S. Department of Energy, approximately 25% of U.S. crude imports come from Canada and Mexico combined. Restricting access to Canadian oil, especially the heavier grades needed for refining operations, could raise production costs and drive up gas prices, according to industry experts.
“The relatively soft stance on Canadian energy imports is likely rooted in caution,” said Amarpreet Singh, an analyst at Barclays. “Tariffs on Canadian energy imports would likely be more disruptive for domestic energy markets than those on Mexican imports and might even be counterproductive to one of the president’s key objectives – lowering energy costs.”
Despite these concerns, Goldman Sachs analysts believe the tariffs will have limited immediate impact on global oil and gas prices. However, should the restrictions persist, supply chain disruptions could lead to tighter market conditions in the long run.
Market Volatility and Economic Concerns Mount
Trump’s tariff statement caused financial markets to respond uncertainly as investor caution increased due to concerns of a protracted trade war. Concerns about inflation and slower economic growth caused global markets to fall, while U.S. gasoline futures increased 2.5% to $2.11 per gallon, their highest level since mid-January.
“It is clear that the tariffs will have a negative effect on the global economy, with physical markets set to get tighter in near term, pushing crude prices higher,” said Ashley Kelty, an analyst at Panmure Liberum.
Rystad Energy’s Mukesh Sahdev noted that the impact on gasoline prices is inevitable, as U.S. refiners struggle with increased costs and supply shortages. If the tariffs remain in place, production cuts in Canada and Mexico could further strain global energy supplies, giving OPEC+ greater leverage in maintaining high crude prices.
