Oil Prices Extend Losses Amid Uncertainty Over Trump Tariffs

Oil prices continued their downward trend on Tuesday, as investors assessed U.S. President Donald Trump's plans to apply new tariffs later than expected while boosting oil and gas production in the United States. Brent crude futures were down 65 cents, or 0.81 percent, to $79.5 per barrel at 0909 GMT, while U.S. West Texas Intermediate crude futures were down by $1.15, or 1.48 percent, at $76.73. There was no settlement in the U.S. market on Monday due to a public holiday.

The initial sense of relief that trade measures weren't an immediate focus on Trump's "Day 1" was quickly offset by reports of 25 percent tariffs on Mexico and Canada as early as February, which saw risk sentiments turn. Trump did not impose any sweeping new trade measures right after his inauguration on Monday, but told federal agencies to investigate unfair trade practices by other countries. He said he was thinking of imposing 25 percent tariffs on imports from Canada and Mexico from Feb. 1, rather than on his first day in office as previously promised.

The tariff reprieve initially helped push oil prices down, but duties on Canadian crude could eventually drive the market higher. Also pressuring prices on Monday was a stronger U.S. dollar, as its strengthening makes oil more expensive for holders of other currencies. The dollar rebounded after Trump's comments on imposing tariffs against Mexico and Canada, Varga said, noting that the dollar's strength is negatively impacting oil prices.

Trump on Monday laid out an extensive plan to accelerate oil, gas, and power permitting in order to maximize already record high U.S. energy production. The U.S. president also said his administration would "probably" stop buying oil from Venezuela. The U.S. is the second-biggest buyer of Venezuelan oil after China. Trump also promised to refill strategic reserves, a move that could be bullish for oil prices by boosting demand for U.S. crude oil.



In the short term, the U.S. doesn't have much more capacity to increase shipments. And since LNG is sold through long-term contracts, adding shipments to Europe would require original buyers of the gas to agree to divert its shipments to Europe — but that wouldn't boost the amount being exported by the U.S. Over the longer term, more capacity will come on line with dozens of projects in the U.S. currently in the works.

The U.S. has already assumed a critically important role as an oil supplier to Europe, especially in the wake of Russia's invasion of Ukraine. Shipments are now holding steadily up around the 2 million-barrels a day mark, exceeding flows from countries including Saudi Arabia, west Africa, and elsewhere. U.S. barrels have also become increasingly important in setting Dated Brent, the world's key price for determining physical market transactions. Those flows have largely been a function of free-market trading and it's hard to know what difference any kind of government-level intervention could make to them. Asia also competes for the barrels. Refineries are optimized to make the right fuels from the right crudes.

But the EU has still prepared for the possibility that it will end up in a trade war with Washington. The EU's new anti-coercion instrument strengthens trade defenses and enables the commission, the bloc's executive arm, to impose tariffs or other punitive measures in response to such politically motivated restrictions. The EU also adopted a so-called foreign subsidies regulation, which allows the commission to prevent foreign companies that receive unfair state handouts from participating in public tenders or merger-and-acquisition deals in the bloc, among other measures.

Trump has multiple grievances against the EU and has criticized Europe for not spending enough on defense and for the U.S.-EU trade deficit. He once referred to Brussels, the seat of the EU institutions, as a "hellhole," and more recently he said he'd once told a NATO member that he'd let Russia do "whatever the hell they want" to it if it didn't hit defense spending targets.

Trump has threatened tariffs against countries from China to Canada, and is particularly focused on nations that have trade deficits with the U.S. Europe is already the top destination for American LNG, with more than half of the deliveries going to the continent last year. The U.S. is the world's largest producer of crude oil and the biggest exporter of liquefied natural gas. LNG buyers — including the EU and Vietnam — have already talked about purchasing more fuel from the U.S., in part to deter the threat of tariffs.

In conclusion, oil prices extended losses on Tuesday as investors assessed U.S. President Donald Trump's plans to apply new tariffs later than expected while boosting oil and gas production in the United States. The initial sense of relief that trade measures weren't an immediate focus on Trump's "Day 1" was quickly offset by reports of 25 percent tariffs on Mexico and Canada as early as February, which saw risk sentiments turn. The tariff reprieve initially helped push oil prices down, but duties on Canadian crude could eventually drive the market higher. The U.S. has already assumed a critically important role as an oil supplier to Europe, especially in the wake of Russia's invasion of Ukraine. However, the EU has prepared for the possibility that it will end up in a trade war with Washington, with the EU's new anti-coercion instrument and foreign subsidies regulation strengthening trade defenses. Trump has multiple grievances against the EU and has threatened tariffs against countries from China to Canada, with Europe being the top destination for American LNG.