HG MARKETS:

Oil prices climbed on Monday following the imposition of new tariffs by U.S. President Donald Trump on imports from Canada, Mexico, and China. The tariffs have heightened fears of supply disruptions, though concerns over a potentially damaging trade war tempered further gains. Brent crude futures rose by 78 cents, or 1.03%, to $76.45 per barrel, after reaching an intraday high of $77.34. Similarly, U.S. West Texas Intermediate (WTI) crude futures increased by $1.36, or 1.88%, to $73.89, having earlier peaked at $75.18 their highest level since January 24.

The newly announced tariffs, set to take effect on February 4, include a 25% levy on most goods from Mexico and Canada, as well as a 10% tariff on energy imports from Canada and Chinese goods. Notably, the relatively moderate tariff on Canadian energy imports suggests a strategic approach aimed at mitigating potential disruptions to domestic energy markets. Imposing higher tariffs on Canadian crude could prove counterproductive to one of the administration’s key goals is reducing energy costs.

Canada and Mexico are the largest suppliers of crude oil to the U.S., collectively accounting for approximately 25% of the oil processed by American refineries into fuels such as gasoline and heating oil, according to the U.S. Department of Energy. The tariffs are expected to increase costs for the heavier crude grades required by U.S. refineries for optimal production, industry sources indicated.

Market analysts, including Mukesh Sahdev of Rystad Energy, anticipate that gasoline prices in the U.S. will rise as a result of both reduced crude supply for refineries and decreased availability of imported refined products. U.S. gasoline futures surged 2.5% to $2.11 per gallon, reaching their highest level since January 16 at $2.162.

While the tariffs may exert inflationary pressure and negatively impact global economic growth, the immediate effect is expected to be a tightening of physical crude markets, thereby pushing oil prices higher. Investors are closely monitoring developments from today’s OPEC+ meeting, where the group is expected to maintain its strategy of gradual production increases.

If the tariffs remain in place for an extended period, they could lead to production declines in Canada and Mexico, potentially providing OPEC+ with an opportunity to ease its existing output restrictions. As the situation evolves, market participants will assess the broader economic implications of the trade measures, particularly their impact on global energy supply and demand dynamics.