Oil Poised for Third Weekly Gain Ahead of More Trump Tariffs

Oil prices are on the cusp of their third consecutive weekly gain, buoyed by a mix of geopolitical tensions and the looming threat of additional tariffs from the Trump administration. The market is bracing for potential disruptions in global oil supply chains as President Trump's tariffs on imports from Canada, Mexico, and China take effect. This move has sparked concerns about increased volatility and potential supply disruptions, which could drive oil prices higher in the short term.

The recent imposition of tariffs on Canadian and Mexican goods, which include oil and gas, has already led to market jitters. The tariffs, which went into effect on March 4, 2025, have accelerated U.S. inflation and slowed economic growth across the continent, creating headwinds for oil demand. This has led to a temporary increase in oil prices as supply tightens.



The tariffs have also led to retaliatory measures from Canada, Mexico, and China, further complicating global trade dynamics. For instance, China’s retaliatory tariffs on U.S. energy products could reduce U.S. oil exports to China, potentially leading to a buildup of oil inventories in the U.S. and putting downward pressure on oil prices in the long term.

The impact of these tariffs on global oil demand and supply dynamics is significant. In the short term, the tariffs could increase uncertainty in global markets, leading to heightened volatility in oil prices. For example, the announcement of tariffs on February 1, 2025, led to immediate market reactions, with Brent crude oil prices rising to $79 per barrel in January due to concerns around weak global oil demand growth and oversupply. This volatility could continue as markets adjust to the new trade policies.

In the long term, the tariffs could slow economic growth in the U.S. and its trading partners, leading to a reduction in oil demand. For example, the tariffs are expected to slightly speed up U.S. inflation and slow economic growth in the near term, potentially plunging two sizable oil markets into recession. This could lead to a long-term decrease in oil prices as demand weakens.

The tariffs could also lead to a shift in global oil trade routes, as countries seek alternative suppliers to avoid the tariffs. For instance, China has found workarounds to continue imports of Russian oil, which could lead to a long-term shift in global oil trade patterns and potentially affect oil prices.

The tariffs could also increase production costs for oil and gas companies, as they may face higher costs for imported equipment and materials. For example, the tariffs on Canadian and Mexican goods could increase the cost of steel and aluminum, which are used in oil and gas production. This could lead to a long-term increase in oil prices as production costs rise.

The tariffs could also affect OPEC+ production cuts, as the organization may adjust its production levels in response to changes in global oil demand and supply dynamics. For instance, OPEC+ announced on Monday that it would begin increasing oil production starting in April 2025, gradually unwinding production cuts made in November 2023. This could lead to a long-term increase in oil supply and a decrease in oil prices.



In summary, the imposition of additional tariffs by President Trump on imports from Canada, Mexico, and China could have significant short-term and long-term effects on global oil demand and supply dynamics, with potential impacts on oil prices ranging from increased volatility and supply disruptions in the short term to reduced economic growth and shifts in trade routes in the long term. Investors should consider these factors when adjusting their portfolios to mitigate risks associated with oil market volatility.