Energy markets on Monday at least partly shrugged off the potential impact on prices of new U.S. tariffs.
Most of the tariffs are set to take effect on Tuesday, though Trump extended the deadline for Mexico by one month after its president pledged to deploy 10,000 National Guard troops to the U.S.-Mexico border.
Refiners balk at higher costs
In the immediate aftermath of the announcement, West Texas Intermediate (WTI) — a domestic benchmark — crude futures surged by $2.65 per barrel, outpacing the $1.67 increase in Brent crude. WTI prices have since come down after the one-month delay for Mexico was reported.
Still, a narrowing spread between WTI and Brent is emblematic of the market’s perception of heightened supply risks within the United States.
The tariffs pose a significant challenge for U.S. refiners, which are already grappling with declining profit margins. Amrita Sen, director of research at Energy Aspects, told Bloomberg, “It’s a win for a lot of the rest of the world, just a massive loss for U.S. refining.” The 10% levy on Canadian oil imports, while lower than the blanket 25% rate, is expected to add to the costs of refiners in the Midwest and on the West Coast.
However, a weakened Canadian dollar may absorb some of this impact.
A pressing concern for U.S. refiners lies in the now-delayed 25% tariff on Mexico. Refineries along the Gulf Coast face substantially higher costs for the approximately 400,000 barrels per day (bpd) of Mexican crude — and an additional 200,000 bpd of fuel oil imports — they process. This situation could potentially benefit Asian refiners at the expense of their U.S. counterparts.
Industry leaders have expressed apprehension about the tariffs’ impact on consumer prices and energy affordability.
Chet Thompson, president and CEO of American Fuel & Petrochemical Manufacturers, stated, “We are hopeful a resolution can be quickly reached with our North American neighbors so that crude oil, refined products and petrochemicals are removed from the tariff schedule before consumers feel the impact.”
The tariffs are likely to restructure the North American oil trade. Canada, leveraging its expanded Trans Mountain pipeline, could redirect more oil exports to Asia from its Pacific Coast. This diversion could force U.S. refiners to seek alternatives at potentially higher costs. Mexico, in turn, might retaliate by limiting oil supplies to the United States, exacerbating supply pressures.
Energy costs unlikely to fuel inflation
Goldman Sachs analysts predict that oil and gas prices are unlikely to see a runaway rally from these tariffs, though some refiners have already begun to raise prices in anticipation of higher costs.