Outlook: The tariffs came to fruition over the weekend and the energy complex is responding with a strong move higher this morning. The US is imposing a 25% tariff on Canada and Mexico but Canadian oil will see a reduced tariff of 10%. Tariffs were also announced for China at 10% and talk of further action against the EU were in the mix. The US is heavily reliant on the heavy crude from Mexico, and without a viable immediate alternative, purchases are expected to continue. Canada may try to move barrels west using their new TMX pipeline, but it’s unclear how much appetite there will be. The US could look to OPEC and Europe to import crude and refined products if considerable tightness develops. President Trump is expected to talk with leaders of Canada and Mexico, which are expected to roll out retaliatory tariffs this week. Industry expectations are that these tariffs will be short-lived. Expect markets to remain volatile as new details surface.
Crude
- President Donald Trump imposed tariffs on Canada, Mexico, and China over the weekend.
- The tariffs will begin on February 4th and will be imposed as 25% on Canada and Mexico, and 10% on China. Canadian oil will be tariffed at 10%.
- The US imports roughly 4 mbpd of oil from Canada and 450,000 bpd from Mexico.
- President Trump warned the tariffs could cause “short-term” pain for Americans.
- OPEC+ is scheduled to meet this morning and the expectation is that they will not alter their plan to gradually unwind cuts.
- Baker Hughes report US oil rigs rose by 7 to 479 last week. This was the first increase in eight weeks.
- As of 7:06 am CST: Brent crude oil up $1.30 to $76.97, US dollar index up $0.919 to 109.289 while the nearby e-mini S&P 500 futures contract down 88.25 to 5978.00.
Diesel
- Refined product futures are sharply higher following the tariff news.
- Many refiners in the Midwest rely on heavy Canadian crude and may face higher input costs if the tariffs result in a cost share scenario.
- The knee-jerk reaction in futures may transition to basis strength as the dust settles.
Gasoline
- Canadian crude accounts for nearly a quarter of US refinery inputs.
- The prompt RBOB crack is up 11% to $15.50 this morning.
Propane
- Prompt Conway Swaps are indicated at .8850 while Belvieu is trading at .9150.
- Conway Swap Oct25-Mar26 strip indicative midpoint ~.8000.
- Conway propane is trading at 51% to WTI.
- Propane is expected to open higher following crude.
Natural Gas
- Roughly 9% of the natural gas consumed in the US came from Canada in 2024. (EIA)
- Continuous NG gapped higher this morning and is trading up over 25 cents.
- Baker Hughes reported nat gas rigs fell by 1 last week.
Continuous Daily WTI:
