- New tariffs on energy imports may lead to higher gasoline prices but won't drastically impact crude oil in the long run.
- Despite Trump's protectionist stance, oil price forecasts remain unchanged, with Canada feeling the most pressure.
- Technical analysis signals a continued bearish trend for crude, with key resistance and support levels shaping future moves.
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Crude oil prices jumped at the Asian open as index futures and major currency pairs gapped lower, in response to President Donald Trump announcing tariffs on Canada, Mexico and China, and warned that European levies are on the way.
This is by far the most extensive act of protectionism taken by a US president in recent history. Unless a deal of some sort is agreed upon by the US and its neighbours, the tariffs will have knock-on effect on inflation, geopolitics and economic growth.
For crude oil, there is both a supply and demand consideration. Taking everything into account, I reckon the net impact on oil prices will be minimal.
Tariffs Shake Markets
The new tariffs, set to take effect on Feb. 4, include a 25% levy on most goods from Mexico and Canada, along with a 10% tariff on energy imports from Canada and China.
North America’s tightly linked oil market means there is the potential to send gasoline prices higher for US drivers as refiners are bracing for higher costs.
Trump said he’s open to discussions with Canadian and Mexican leaders—though he made it clear that he’s not expecting to reverse course.
“I don’t expect anything very dramatic,” Trump said of the planned calls. “We put tariffs on. They owe us a lot of money, and I’m sure they’re going to pay.”
Canada and Mexico have already announced retaliatory measures.
Trump’s Tariffs Unlikely to Shake Oil
It remains to be seen what the impact of Trump’s new tariffs on energy imports will be. The modest gap higher in WTI prices suggests the market believes the reaction will be short-lived.
Indeed, according to Goldman Sachs (NYSE:GS), the impact of the tariffs will not be too significant on oil prices.
Goldman estimates that Canadian oil producers will take the biggest hit, with an expected $3 to $4 per barrel discount on their crude due to limited export alternatives. US consumers, on the other hand, will likely see a $2 to $3 per barrel increase in refined product costs. However, Goldman expects seaborne oil imports from Canada and Mexico to be redirected elsewhere, while the US fills the gap with crude from OPEC, Latin America, and refined products from Europe.
Therefore, despite the new trade barriers, Goldman Sachs left its oil price forecasts for 2025 and 2026 unchanged, citing stable global production and demand. The bank also noted that the Canadian oil tariff has already been priced in.
Crude Oil Technical Analysis and Trade Ideas
From a technical point of view, there is no major shift in the underlying trend of crude oil prices, which remain modestly bearish. The WTI futures chart shows a series of lower highs starting from September 2023. Using those highs, I have drawn a trend line on the chart, which momentarily broke in the third week of January. However, WTI then found solid resistance at $80, which pushed prices back below that trend line in the fourth week of January. With the bearish trend line being re-established, and oil prices going on to break below 200-day average again, the path of least resistance is clearly to the downside.
There are a couple of key resistance levels to watch now. The first one was being tested at $75.00. As well as a psychologically-important hurdle, this level was also previously support and resistance, and comes just above the 200-day average. Above this level, you have that bearish trend line, now coming in around the $26.50 area. The base of the recent breakdown sits at $77.00.
On the downside, a couple of short-term potential support levels to watch include $72.50, roughly corresponding with Friday’s close (and thereby by getting here, the weekend gap would get filled), followed by $71.50 (previously resistance) and then $70.00 (a psychologically-important handle).
So, for the time being, the technical outlook on oil prices remains bearish, but keep an eye on the trade developments and comments from Trump as they could – as we have seen – move oil prices sharply.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.