Oil prices are on the rise as traders react to the latest policy moves by U.S. President Donald Trump. The potential implementation of tariffs on Canadian and Mexican exports, including crude oil, has injected volatility into the global oil market. Despite this uptick, prices remain on track for a weekly decline amid ongoing economic and geopolitical uncertainties.
Oil Prices React to Tariff Fears
On Friday, Brent crude futures for March—set to expire the same day—rose by 61 cents to $77.48 per barrel, while the more active April contract saw a 48-cent increase, reaching $76.37. Similarly, U.S. West Texas Intermediate (WTI) crude climbed 65 cents to settle at $73.38 per barrel.
However, despite this short-term recovery, both benchmarks are poised for a weekly decline, with Brent expected to drop 1.3% and WTI down by 1.69%. For the broader month of January, Brent has seen a 3.8% gain—its best monthly performance since June—while WTI has increased by 2.3%.
Trump’s Tariff Plan Sparks Market Jitters
The surge in prices follows Trump’s announcement that he is considering imposing a 25% tariff on imports from Canada and Mexico. While the policy primarily targets fentanyl shipments, there is uncertainty over whether crude oil imports from these countries will also be affected.
The United States relies heavily on crude imports from its North American neighbors. In 2023, Canada supplied 3.9 million barrels per day (bpd) to the U.S., while Mexico contributed 733,000 bpd. A potential tariff on these imports could significantly disrupt the U.S. oil supply chain, sending ripples across global energy markets.
According to Phillip Nova senior market analyst Priyanka Sachdeva, the possibility of tariffs is adding a layer of unpredictability to oil prices. “The fear of economic slowdown due to trade restrictions is weighing on investor sentiment,” she noted.
Geopolitical Risks Add to Uncertainty
Beyond Trump’s tariff plans, other geopolitical factors are contributing to market instability. The Biden administration had already imposed sanctions on Russian oil, limiting supply and raising concerns about further disruptions. Analysts believe these policies, along with U.S. efforts to curb Iranian and Venezuelan oil exports, are driving up the geopolitical risk premium on crude.
Daniel Hynes, an analyst at ANZ Bank, highlighted the broader implications of these measures. “Restrictions on Russian and Venezuelan oil, coupled with efforts to refill the U.S. Strategic Petroleum Reserve, could create supply shortages, putting additional upward pressure on prices,” he said.
OPEC+ Meeting in Focus
Traders are now looking ahead to the upcoming OPEC+ meeting on February 3, where discussions will center on U.S. oil production plans and global supply concerns. Recent sanctions on Russian oil have already removed over a million barrels from global markets, prompting speculation about potential production adjustments by the oil-producing bloc.
Kazakhstan’s energy minister has indicated that OPEC+ will also discuss the Trump administration’s push to boost U.S. crude output, which could influence future production decisions.
Federal Reserve Holds Rates Steady
On the economic front, the Federal Reserve’s decision to keep interest rates unchanged has added another layer of complexity to the market outlook. With inflation still a key concern, the central bank’s cautious stance suggests a challenging road ahead for economic stability. Analysts warn that if Trump’s tariff policies materialize, inflationary pressures could intensify, further complicating the Fed’s efforts to manage economic growth.
Wrapping Up
While oil prices have seen a temporary lift due to Trump’s tariff threats, the broader market remains uncertain. With geopolitical tensions, economic policies, and OPEC+ decisions all influencing oil prices, investors will be closely monitoring upcoming developments.
