Oil rises after Trump announces tariffs on Canada

Key takeaways:

– Upon the announcement of US-imposed tariffs, oil prices rose immediately as the market reacted to the impact on Canada, the world’s fourth-largest oil producer after the US, Saudi Arabia, and Russia. Over 90% of Canada’s oil exports go to the US, as it has historically viewed North America as an integrated energy market and did not actively diversify its export destinations.

– While a 10% tariff on Canadian oil is less severe than a 25% tariff, any measure that disrupts or constrains energy trade flows can trigger fears of broader supply uncertainties—explaining the rise in oil prices.

– However, in the broader context, this is a relatively small development compared to larger geopolitical factors at play, including OPEC’s response and oil demand.

– In the short term, refineries in the US Midwest will struggle to find immediate alternatives to Canadian oil, contributing to the (temporary) rise in WTI and subsequently Brent prices. However, over time, these refineries are likely to adjust by increasing their reliance on domestic oil production.

– The real concern is not the minor increase in tariffs but the risk of escalating trade tensions evolving into a full-blown trade war, which could weigh on global economic growth—something that OPEC members are closely monitoring.