Oil Ends Lower as Trump's Output and Tariffs Plans Fuel Supply Uncertainty

Oil prices fell on Tuesday as traders weighed prospects for crude supplies after President Donald Trump vowed to boost already record U.S. crude output, threatened to implement a steep tariff on Canadian imports, and called for replenishing the Strategic Petroleum Reserve (SPR). The moves by Trump, who was inaugurated on Monday, raised concerns about increased supply and potential disruptions in the global oil market.



Price moves
-- West Texas Intermediate (WTI) crude for February delivery CL.1 CLG25 fell $1.99, or 2.6%, to end at $75.89 a barrel on the New York Mercantile Exchange on the contract's expiration day. The March contract CL00 CLH25, which is now the front month, lost $1.56, or 2%, to $75.83 a barrel. WTI futures didn't settle Monday due to the Martin Luther King Jr. Day holiday.
-- March Brent crude BRN00 BRNH25, the global benchmark, declined 86 cents, or 1.1%, to $79.29 a barrel on ICE Futures Europe.
-- February gasoline RBG25 shed 1.3% to $2.08 a gallon, while February heating oil HOG25 lost 2.4% to $2.56 a gallon.
-- Natural gas for February delivery NGG25 settled at $3.76 per million British thermal units, down 4.9%.

Market drivers
Trump on Monday issued an executive order declaring a "national energy emergency" that will speed permitting of oil and gas production. He also removed the U.S. from an international agreement on fighting climate change. The moves are expected to allow more crude to flow into the market, which is suffering from a supply glut, according to Samer Hasn, senior market analyst at XS.com. This may push energy prices further down, which is "what Trump aspires to do in order to serve his agenda of reducing inflation. Lower energy prices are a key factor in lowering inflation overall," Hasn said.

In his inaugural address, Trump said his administration would move to refill the SPR, which was tapped heavily during the Biden administration. "We will drill, baby, drill," Trump said, repeating an oft-used line from his election campaign. "We will bring prices down, fill our strategic reserves up again right to the top and export American energy all over the world."

The measures are "not expected to have an effect on U.S. oil and gas production, at least not in the short term. Both have already risen to record levels despite the restrictions imposed to date," Carsten Fritsch, commodity strategist at Commerzbank, said in a note. However, moving to quickly refill the SPR would provide support for crude prices in the short run, as doing so would withdraw oil from the market quickly, according to Ipek Ozkardeskaya, senior analyst at Swissquote Bank. However, Trump's desire for cheap energy may lead him to act slowly, which could limit the impact on oil prices.

Trump, in remarks made in the Oval Office, said he was considering imposing a 25% tariff on imports from Canada and Mexico beginning Feb. 1 - a move that could also serve to boost U.S. energy prices in the short term. If applied to oil, a tariff would affect around 4.5 million barrels, or around 70%, of daily U.S. crude imports, said Commerzbank's Fritsch. "It is impossible to source this volume elsewhere in the short term, especially as the oil from Canada and Mexico is urgently needed by U.S. refineries due to its special characteristics (density, sulphur content) and cannot be replaced by light U.S. shale oil," he said. "The refineries would presumably pass on the increased costs for crude oil imports from Canada and Mexico to U.S. consumers through higher gasoline and diesel prices."

As a result, the tariff threat appears more likely to be a negotiating tactic aimed at gaining concessions with Canada and Mexico on other issues, such as border controls, Fritsch said. Meanwhile, data on U.S. petroleum supplies from the Energy Information Administration will be delayed by a day this week due to Monday's Martin Luther King Jr. Day holiday. The report will be released Thursday at noon Eastern time.

In conclusion, Trump's plans to boost U.S. crude oil output and replenish the SPR, coupled with the threat of tariffs on Canadian and Mexican crude oil imports, have created uncertainty in the global oil market. These policies could lead to increased supply, potential disruptions, and changes in pricing dynamics. As the market awaits further developments, traders and investors are closely monitoring the situation to assess the potential impacts on oil prices and the broader energy sector.