Oil Holds Near Yearly Low With US Tariffs and Supplies in Focus

Oil prices have been on a rollercoaster ride in recent months, with the US tariffs on Canada and Mexico adding another layer of complexity to the global energy landscape. As of late September 2024, oil prices have been hovering near yearly lows, with a barrel of West Texas Intermediate (WTI) crude oil trading at around $69, and Brent crude oil at approximately $75. The focus on US tariffs and supplies has been a significant factor in shaping the current oil market dynamics.



The proposed US tariffs on Canada and Mexico have the potential to impact the global oil supply and demand dynamics in both the short and long term. In the short term, the tariffs are expected to push a portion of US imports into overseas markets, altering crude flows in North America. This shift in crude flows will likely lead to a reduction in US oil demand by 2026, according to Wood Mackenzie. Additionally, the tariffs are expected to cause unpopular, if temporary, gasoline price increases in the US Midwest, where many refineries rely on Canadian crude (Goldman Sachs, 2023).

In the long term, the tariffs could have more significant implications for the global oil market. Mexican exports are expected to shift away from the US and towards Europe and Asia, impacting around 600 kb/d of imports from Mexico into the US. This shift in export destinations could lead to increased reliance on alternative suppliers, such as Iraq, for heavy crude exports to the US. However, these imports are generally cost disadvantaged compared to nearby Canadian and Mexican heavy supply (Wood Mackenzie, 2023). Furthermore, if the tariffs lead to a full-blown trade war, it could result in a worldwide recession, causing oil prices to plummet (Andy Lipow, President of Lipow Oil Associates, 2023).

The international expansion of national oil companies (NOCs) has accelerated in recent years, with many venturing beyond their national borders to maintain long-term production levels and strengthen their positions as dominant players in the global energy sector. However, international expansion also introduces new challenges, such as geopolitical risks, local regulations, and cultural differences. To mitigate these challenges, NOCs can employ several strategies, such as conducting thorough risk assessments, building strong relationships with local governments and communities, obtaining political risk insurance, and adapting business practices and communication styles to align with local cultural norms.

In conclusion, the US tariffs on Canada and Mexico have the potential to significantly impact the global oil supply and demand dynamics in both the short and long term. As oil prices hover near yearly lows, the focus on US tariffs and supplies remains a critical factor in shaping the current oil market dynamics. NOCs must navigate the complex interplay of geopolitical risks, local regulations, and cultural differences to successfully expand internationally and maintain their competitive edge in the global energy sector.