Oil prices declined following President Donald Trump’s warning of new tariffs on China, fueling concerns of escalating trade tensions. Brent crude slipped to around $79 per barrel, continuing a series of declines since Thursday, while West Texas Intermediate fell below $76. Trump indicated he was considering imposing a 10% tariff on China in retaliation for the country’s role in the fentanyl trade, while also suggesting potential tariffs on Canada and Mexico. In response, Canada has increased crude exports to the U.S. in an effort to avoid impending levies.
Since taking office, Trump has made several bold moves, including reshaping U.S. energy policies and threatening tariffs of up to 25% on Canada and Mexico, both major oil exporters to the U.S. Canadian suppliers are scrambling to move as much oil as possible to the U.S. before these tariffs, according to Rystad Energy. If imposed, these levies, set to start on February 1, could drive up gasoline prices for American consumers, a potential consequence that Goldman Sachs warned about last year.
Despite these threats, oil prices remain higher year-to-date, bolstered by extensive U.S. sanctions on Russia that have disrupted global oil and tanker markets. Trump also suggested that further sanctions on Russia could be imposed if President Vladimir Putin fails to engage in negotiations regarding Ukraine.
Warren Patterson, Head of Commodities Strategy at ING Groep NV in Singapore, noted that while the oil market was previously focused on the risks of Russian sanctions, attention is now shifting towards the escalating trade risks. The potential tariffs also play a role in strengthening the U.S. dollar, Patterson added.
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