Reactions Pour In As Trump Implements Reciprocal Tariffs; Oil Ekes Out Gains

Oil suppliers Canada and Mexico are exempted from the latest rounds of tariffs: File Image/Pixabay

U.S. president Donald Trump on Wednesday announcing reciprocal tariffs on major trading partners stirred concerns that a global trade war would dampen oil demand; however, crude prices rose, albeit minimally.

Brent settled up 46 cents at $74.95 per barrel, while West Texas Intermediate settled up 51 cents at $71.71.

Trump applied a minimum 10 percent tariff on all exporters to the U.S., with higher rates on other trading partners, such as a 34 percent tariff on U.S. imports from China and 20 percent on imports from the European Union.

However, Trump refrained from adding new tariffs on Canada and Mexico, the key oil suppliers to refiners in the Midwest and Gulf Coast.

Pavel Molchanov, an analyst at Raymond James, echoed the sentiments of many of his colleagues by saying, "Tariffs have a negative effect on the overall economy, and anything that has a negative effect on the overall economy is going to — all other things being equal — damage oil demand."

Bloomberg noted that Canadian heavy crude's discount to WTI "initially widened to more than $15 a barrel when the tariffs were announced, indicating that some of the costs would be borne by oil producers; since then, the discount has narrowed as oil companies shipped as much crude as possible to the U.S. ahead of the duties."

Meanwhile, Trump's imposition on Wednesday of steep tariffs on countries that import oil from Venezuela were considered "unprecedented and legally questionable, but that won't prevent the administration from moving forward with them," according to Rapidan Energy.

The tariffs will primarily affect China, followed by India and other countries unless the U.S. decides to grant exemptions.

Also on Wednesday, former U.S. treasury secretary Lawrence Summers warned that the tariffs would trigger an economic shock that would reduce productive capacity and lead to higher prices and unemployment. 

"This is the kind of thing you discuss in the way we would usually discuss an oil-price spike or earthquake or a drought, as a supply shock," he said. "The question is mostly how much damage is going to be done."