MW Oil, gasoline futures rise after Trump slaps tariffs on Canada crude

By Myra P. Saefong and William Watts

OPEC+ reaffirms current production plans

Oil futures climbed Monday after President Trump slapped tariffs on Canada, Mexico and China over the weekend, sparking worries over U.S. crude imports. Upside was limited, however, by concerns a trade war would dent demand.

At a regularly scheduled meeting on Monday, ministers from members of OPEC+ - made up of the Organization of the Petroleum Exporting Countries and its allies - left its existing oil production plans unchanged, even as Trump last month called on the group to lower oil prices.

Price moves

-- West Texas Intermediate crude CL00 for March delivery CL.1 CLH25 rose 35 cents, or 0.5%, to $72.88 a barrel on the New York Mercantile Exchange after trading as high as $75.18.

-- April Brent crude BRN00 BRNJ25, the global benchmark, tacked on 42 cents, or 0.5%, to $76.09 a barrel on ICE Futures Europe.

-- Back on Nymex, March gasoline RBH25 climbed 2.7% to $2.115 a gallon, while March heating oil HOH25 gained 1.9% to $2.4426 a gallon.

-- March natural gas NGH25 surged 8.5% to $3.303 per million British thermal units, after posting a gain of nearly 12% last week.

Market drivers

Oil futures climbed, but pared some of the early gains that had lifted WTI to intraday highs above $75 a barrel. Trump on Saturday announced tariffs, including levies of 25% on imports from Canada and Mexico, 10% on energy products from Canada and an additional 10% tariff on China.

"The fact that Canadian energy will have a 10% tariff - rather than 25% on everything else from Canada - will moderate the resulting increase in U.S. fuel prices," Pavel Molchanov, an analyst at Raymond James, told MarketWatch.

'The rule of thumb is that it takes three to four weeks between an oil price movement and a corresponding change in prices at the pump.'Pavel Molchanov, Raymond James

"But let's be clear, drivers will still notice it at the pump," he said. "The rule of thumb is that it takes three to four weeks between an oil price movement and a corresponding change in prices at the pump. That means drivers should notice it toward the end of February," though the magnitude of the price increase will be "very different as we look around the country."

Read: Here's how much gas could cost you if Trump's threatened tariffs go through

Many U.S. refiners are heavily dependent on heavy crudes produced by Canada and Mexico. The U.S. imported 4.42 million barrels of oil per day from Canada in 2023, representing 52% of total U.S. oil imports, according to the Energy Information Administration. Mexico comes in at a distant second, representing 11% of U.S. oil imports at 910,000 barrels per day.

"In theory, tariffs mean higher feedstock prices for U.S. refiners (which will ultimately be passed onto consumers)," Warren Patterson and Ewa Manthey, commodity strategists at ING, said in a note.

They argued that the full cost of the tariff is unlikely to be picked up by U.S. refiners and consumers, however. In 2023, 97% of Canadian oil exports went to the U.S. Given that Canada has very few alternatives for where to export its crude oil, the price of West Canada Select will fall, and its differential to WTI widen, they wrote.

At the same time, a global trade war is seen damping demand for crude.

The tariffs "could be negative for oil prices if this has a negative economic impact," said Matt Polyak, managing partner at Hummingbird Capital.

"Despite relative statistical inelasticity to GDP, historically one rule of thumb can be that every 1% of GDP growth or decline can impact U.S. demand growth" for crude oil by plus or minus 0.5%, he said.

The tariffs also come amid concerns over China's demand outlook, with tariffs seen further weighing on the economy of the world's top crude importer.

"Thus, the signal is that tariffs will make it harder for OPEC+ to unwind cuts if they last longer and result in a significant demand dent," Mukesh Sahdev, global head of commodity markets - oil, at Rystad Energy, said in a note.

Meanwhile, OPEC+ ministers who met via videoconference Monday reaffirmed their current oil production plans, which include a gradual phaseout of voluntary production cuts of 2.2 million barrels starting April 1. The unwinding of those cuts had initially been set to take effect in the final quarter of last year, but were repeatedly delayed amid oil-price weakness.

Trump last month had called on OPEC to boost oil production. There was some speculation that OPEC+ would end the voluntary cuts to please Trump, but that overlooked the fact that the group had ignored Trump's request in the past, and cooperated when oil prices fell, said Anas Alhajji, an independent energy expert and managing partner at Energy Outlook Advisors.

"OPEC+ is likely to start unwinding the voluntary cuts on April 1st if two conditions are met" - low inventories and increasing global oil demand, he told MarketWatch.

During the committee meeting, OPEC+ replaced some of the secondary sources it uses to assess crude-oil production and member compliance with output agreements. Rystad Energy and the U.S. Energy Information Administration have been replaced by Kpler, OilX, and ESAI, it said.

-Myra P. Saefong -William Watts

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February 03, 2025 10:46 ET (15:46 GMT)

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