WTI trades around $73.00, upside appears due to potential supply concerns
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WTI could appreciate due to potential supply disruptions following Trump tariffs on Canada and Mexico.
Canadian energy products will incur a 10% duty, while Mexican energy imports will be subjected to the full 25% tariff.
OPEC+ is unlikely to deviate from its current plan for a gradual increase in output when it meets on Monday.
West Texas Intermediate (WTI) Oil price edges lower to near $73.00 per barrel during the Asian session on Monday. However, concerns over potential supply disruptions from Canada and Mexico—two of the largest suppliers to the United States (US)—provided support to crude Oil prices, though expectations of weaker fuel demand limited gains.
On Saturday, US President Donald Trump announced a 25% tariff on Canadian and Mexican goods, while China, the world's largest Oil importer, would face a 10% tariff. Canadian energy products will be subject to a 10% duty, whereas Mexican energy imports will face the full 25% tariff, according to White House officials.
These tariffs are set to take effect on Tuesday and will remain in place until the fentanyl overdose crisis is "resolved." In response, Canada, Mexico, and China have vowed to implement retaliatory measures against the broad trade restrictions.
Canada and Mexico are the largest sources of US crude imports, supplying about a quarter of the Oil processed by US refiners into products such as gasoline and heating Oil, per the US Department of Energy. The new tariffs will increase costs for the heavier crude grades essential for optimal refinery operations, potentially reducing profitability and forcing production cuts, industry sources told Reuters.
Meanwhile, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) faces growing pressure from Trump to reverse production cuts. However, OPEC+ delegates told Reuters the group is unlikely to deviate from its current plan for a gradual increase in output when it meets on Monday.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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