Oil prices fall after US pauses tariffs on Mexico and Canada

Trump delays plans to impose a 25% tariff on Mexico and Canada, two of the largest crude suppliers to the US market

US President Donald Trump. Canada and Mexico are two of the largest crude suppliers to the US market. EPA

Oil prices fell on Tuesday as the US delayed tariffs on Mexico and Canada, easing concerns about a major disruption to crude oil flows to the world’s biggest economy.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.87 per cent lower at $75.30 a barrel at 2.55pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 1.54 per cent at $72.03.

US President Donald Trump has agreed to delay a 25 per cent tariff on Mexican and Canadian goods for a month in exchange for commitments on border security and crime enforcement from both countries.

Canada and Mexico are two of the largest crude suppliers to the US market. Energy resources from Canada were to have a lower tariff of 10 per cent.

As of October 2024, US refiners imported about 4.6 million barrels per day of crude from Canada and 563,000 bpd from Mexico, according to the US Energy Information Administration (EIA).

Potential tariffs would have huge implications for the oil and gas industries in the US, Canada and Mexico.

"US refiners would need to secure heavy crude from farther afield, which would raise their freight costs. If they continue to buy from the neighbours, they need to either seek discounts to offset the additional cost of the tariff or pass on the incremental costs to their consumers," said Vandana Hari, founder and chief executive of Vanda Insights.

"Mexico may be able to redirect most or all of its barrels that might be locked out of the US, but Canada has limited spare export infrastructure capacity, so either the producers will have to drop their prices and suffer the losses, or shut in output that is unable to find a market," Ms Hari told The National.

Meanwhile, the US went ahead with 10 per cent tariffs on goods from China, prompting Beijing to respond with its own tariffs.

Starting from February 10, China will apply a 15 per cent tariff on US coal and liquefied natural gas and a 10 per cent tariff on US crude oil.

While energy exports from the US to China are limited, a renewed trade war between the two countries will create uncertainty and risks dampening global trade, which in turn negatively impacts demand for crude oil.

Mr Trump initiated a trade war with China in 2018 during his first stint as president. By the end of 2019, the US had placed tariffs on about $350 billion worth of Chinese goods, and China had responded with tariffs on about $100 billion of US exports.

The "Phase One" trade deal, signed by both countries in January 2020 to de-escalate their trade war, required China to increase its purchases of US goods and services by $200 billion over the next two years.

Opec+ sticks to policy

On Monday, Opec+ stuck to its existing production policy amid pressure from Mr Trump to bring down crude prices by boosting output.

The group announced in December that the voluntary oil production cuts of 2.2 million bpd, which began in November 2023, would remain in place until the end of March. After that, the supply curbs will be gradually reduced each month until September 2026.

“Opec+ is likely to monitor the impact of tariffs on economic growth, the impact on US sanctions on Russia, as well the impact of interest rate cuts and fiscal stimulus measures,” said Giovanni Staunovo, strategist at UBS.

“We continue to expect the group to aim for a balanced oil market this year. Hence, we maintain our view that oil prices will remain supported around current or slightly higher price levels,” he said in a research note on Tuesday.

Last month, Mr Trump asked the group to lower crude prices, claiming cheaper oil could help end the war between Russia and Ukraine.