U.S. Crude Prices Slip as China Tariffs Take Effect, Canada and Mexico Tariffs Delayed

U.S. crude prices dropped nearly 2% on Tuesday following the implementation of new tariffs on Chinese imports, while President Donald Trump postponed a decision on steep levies targeting Canada and Mexico for another month.

West Texas Intermediate (WTI) crude slid by $1.32, or 1.8%, trading at $71.84 per barrel, while Brent crude futures fell 87 cents, or 1.2%, to $75.09 as of 06:17 GMT.

China Retaliates with Energy Tariffs

The newly imposed U.S. tariffs of 10% on Chinese imports took effect during Asian trading hours, prompting Beijing to counter with tariffs of 15% on U.S. coal and liquefied natural gas (LNG) and 10% on crude oil, set to begin on February 10.

“China’s counter-tariffs on the U.S. may be perceived as a sign of escalation, potentially reducing the chances of a temporary resolution similar to the agreements Washington reached with Mexico and Canada,” stated IG market strategist Yeap Jun Rong.

“As a result, broader risk sentiment is weighing on optimism, with oil prices extending their losses amid shifting global trade dynamics,” he added.

Market participants are now factoring in the potential downside risks to global economic growth should both the U.S. and China continue their tit-for-tat trade measures.

Impact on U.S.-China Oil Trade

According to customs data, China’s crude oil imports from the U.S. accounted for only 1.7% of its total crude imports in 2024.

“WTI crude shipments to China will be impacted, as the 10% tariff will make WTI deliveries far less competitive compared to other alternatives like Kazakhstan’s CPC blend and Abu Dhabi’s Murban crude,” explained June Goh, senior analyst at Sparta Commodities.

However, Goh noted that the broader impact on WTI prices should remain limited, as U.S. crude can be redirected to other global markets with relative ease.

Tariffs on Canada and Mexico Temporarily Suspended

Meanwhile, Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum agreed to strengthen border enforcement measures in response to Trump’s demand to curb illegal immigration and drug trafficking.

This agreement has resulted in a 30-day delay on the proposed 25% tariffs. However, a 10% tariff on energy imports from Canada, initially set to take effect on Tuesday, remains under review.

Market Outlook: U.S. Oil Stockpile Data in Focus

On the demand side, traders and investors are awaiting the release of weekly U.S. oil inventory data for the week ending January 31. Analysts polled by Reuters expect crude stockpiles to have increased, while gasoline and distillate inventories are projected to have declined.

Market sentiment remains cautious as traders monitor the unfolding trade tensions and their impact on global oil demand.

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