U.S. crude prices fell by nearly 2% on Tuesday as U.S. tariffs on China took effect, though President Donald Trump paused for a month a decision on steep levies on neighbours Canada and Mexico.
U.S. West Texas Intermediate (WTI) crude declined $1.32, or 1.8%, to trade at $71.84 per barrel, while Brent futures fell 87 cents, or 1.2%, to $75.09 by 0617 GMT.
U.S. tariffs of 10% on Chinese imports took effect at mid-day in Asian trade, spurring Beijing to retaliate with levies of 15% on U.S. coal and liquefied natural gas and 10% on crude oil starting from Feb. 10.
“China’s counter-tariffs on the US may be perceived as a sign of escalation and may reduce the likelihood of a temporary resolution akin to U.S. agreements with Mexico and Canada,” IG market strategist Yeap Jun Rong said in an email.
“As such, broader risk sentiments pare some optimism amid the changing dynamics, with oil prices extending losses further.”
He added, “Market participants are back to price for potential downside risks to global growth in the event of further tit-for-tat measures from both the United States and China.” China’s 2024 crude oil imports from the United States make up 1.7% of its total imports of crude, customs data show. “WTI flows to China will be impacted, as a 10% tariff … will render WTI delivered to China very expensive against other alternative crude like Kazakhstan’s CPC and Abu Dhabi’s Murban,” Sparta Commodities’ senior analyst June Goh told Reuters.
“However, in the big scheme of things, this should not impact the price of WTI significantly as WTI can still flow to other regions easily,” she added on messaging app WhatsApp.
Earlier, Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum said they had agreed to bolster border enforcement efforts in response to Trump’s demand to crack down on immigration and drug smuggling.
That would pause for 30 days tariffs of 25%, with a 10% tariff on energy imports from Canada, that had been set to take effect on Tuesday.
On the demand side, investors will be looking out for weekly U.S. oil stockpile data for the week to Jan. 31. Analysts polled by Reuters expected that crude inventories rose, while gasoline and distillate inventories probably fell.