Oil prices rose sharply on Monday as markets reacted to President Donald Trump's sweeping tariffs on imports from Canada, Mexico, and China, sparking fears of supply chain disruptions and increased costs for U.S. refiners.
U.S. West Texas Intermediate (WTI) crude climbed 2% to $73.97 per barrel, hitting an intra-day high of $75.18, while Brent crude rose 0.8% to $76.29 per barrel, reaching a session peak of $77.34.
Trump Tariffs on Canada, Mexico, and China
Trump's executive order, signed Saturday, imposes a 25% tariff on Mexican and Canadian imports-with an exception for Canadian energy products, which will face a 10% tariff-and an additional 10% duty on Chinese imports.
White House officials said the decision aims to curb illegal immigration and drug trafficking while also protecting U.S. industries from what Trump has called unfair trade practices. However, the move has sparked concerns over higher fuel costs and potential supply chain disruptions, particularly for refineries dependent on North American crude imports.
Supply Risks and Market Reactions
Canada and Mexico supply a significant portion of U.S. crude imports, with the U.S. Department of Energy reporting that:
- The U.S. imports 4 million barrels per day from Canada
- The U.S. imports nearly 500,000 barrels per day from Mexico
The newly imposed tariffs are expected to increase costs for U.S. refiners, particularly those in the Midwest and Gulf Coast regions, which rely on heavier crude blends from Canada and Mexico to optimize fuel production.
Energy stocks reacted sharply, with Valero Energy Corporation (NYSE: VLO)-the third-largest U.S. refiner-warning that the industry could cut production if tariff-related cost increases are not absorbed elsewhere.
"The relatively soft stance on Canadian energy imports is likely rooted in caution," Barclays analyst Amarpreet Singh wrote in a note, explaining that tariffs on Canadian crude would be more disruptive to U.S. energy markets than those on Mexican imports.
Market and Global Response
Following the tariff announcement:
- U.S. gasoline futures jumped 2.6% to $2.1128 per gallon, briefly touching a high of $2.162-the highest level since January 16.
- The U.S. dollar strengthened, making oil more expensive for international buyers, potentially dampening global demand.
- Stock futures saw a sharp decline, reflecting broader concerns about escalating trade tensions.
In retaliation, Canada announced C$155 billion ($106 billion USD) in tariffs on U.S. goods, including alcohol, fruits, and consumer products. Mexican President Claudia Sheinbaum has also vowed to implement countermeasures, stating, "We categorically reject the White House's slander of the Government of Mexico alleging alliances with criminal organizations, as well as any intention to interfere in our territory."
Meanwhile, China's Ministry of Commerce condemned the tariffs, stating it would file a complaint with the World Trade Organization (WTO) and consider additional countermeasures to protect its economic interests.
Outlook and Potential OPEC Response
While oil prices surged on immediate supply concerns, some analysts predict a longer-term decline as tariffs dampen global demand and put pressure on energy markets.
- UBS analysts warned of increased volatility in crude and natural gas markets, stating, "We expect some volatility as the 10% [Canadian tariff] is lower than a potential 25% tariff."
- OPEC+ is set to meet Monday, with expectations that the group will maintain its planned gradual output increases despite Trump's pressure to unwind production cuts.
MST Marquee energy analyst Saul Kavonic noted that near-term oil prices could rise due to supply disruptions, but longer-term declines are possible as tariffs slow demand and raise uncertainty across global markets.