TOKYO – Oil prices dropped on Tuesday after US President Donald Trump agreed to delay imposing hefty tariffs on Mexico and Canada, the two largest foreign oil suppliers to the United States, for a month.
Brent futures fell by 41 cents, or 0.5%, to $75.55 per barrel at 0149 GMT, while US West Texas Intermediate (WTI) crude dropped by 75 cents, or 1%, to $72.41.
Both Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum confirmed they had agreed to strengthen border enforcement in response to Trump’s demands to curb immigration and drug smuggling.
As a result, the 25% tariffs, including a 10% tariff on energy imports from Canada, which were set to take effect on Tuesday, will be paused for 30 days.
Despite the tariff pause, ING analysts warned that Canada remains vulnerable to trade wars unless it diversifies its export routes, including building more pipelines from oil fields to ports.
“It will take several years to build this infrastructure, but it would give Canadian producers more flexibility and potential access to additional markets for Canadian oil,” ING noted.
Trump is also expected to speak with Chinese President Xi Jinping soon, as a 10% tariff on all Chinese goods is set to be implemented later on Tuesday.
The Trump administration’s trade tariff plans carry inflation risks, as three Federal Reserve officials cautioned on Monday, with one suggesting that the uncertainty over price projections calls for slower interest rate cuts.
Trump rolled back more than 70 climate and green energy initiatives during his first week in office.
Lower interest rates usually stimulate economic growth and boost oil demand.
The Organisation of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, discussed Trump’s call to increase oil production on Monday but decided to maintain their policy of gradually raising oil output starting in April.
On the demand side, investors will be keeping an eye on US oil stockpile data for the week ending January 31. Analysts surveyed by Reuters expect a rise in crude inventories, while gasoline and distillate inventories are likely to have decreased.
The inventory reports will be released by the American Petroleum Institute (API) at 4:30 pm ET (2130 GMT) on Tuesday, followed by the US Energy Information Administration (EIA) at 10:30 am (1530 GMT) on Wednesday.
