Crude prices fell on Tuesday as U.S. tariffs on China took effect and Beijing retaliated with its own measures, heightening trade war fears, while U.S. President Trump delayed steep levies on Canada and Mexico for a month.
U.S. West Texas Intermediate (WTI) crude was down $2.03, or 2.77%, at $71.13 a barrel by 1400 GMT while Brent futures lost $1.41, or 1.86%, to $74.55.
China’s Finance Ministry said it would impose levies of 15% on U.S. coal and LNG, as well as 10% on crude oil, farm equipment and the small number of trucks as well as big-engine sedans shipped to China from the United States.
Ongoing trade tensions between the U.S. and China may dampen demand for oil, leading to continued pressure on prices.
“The tit-for-tat measures out from China may not stop at just the 10% tariffs on crude oil from the U.S., which can also see a deliberate attempt to weaken the yuan if the U.S. fires back with more tariffs on China exports to the U.S.,” said Kelvin Wong, senior market analyst at OANDA.
“Overall such actions are likely to give rise to a stronger U.S. dollar that in turn weakens … oil prices given that OPEC+ members are still on track to increase oil supply gradually from April.”
China’s 2024 crude oil imports from the United States accounted for 1.7% of its total crude imports, customs data shows.
China’s counter-tariffs could be perceived as a sign of escalation and 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.
Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum earlier 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 U.S. tariffs of 25% on the two countries as well as a 10% tariff on energy imports from Canada, all of which had been set to take effect on Tuesday.
The OPEC+ group of oil producers agreed on Monday to stick to its policy of raising oil output gradually from April.
On the demand side, investors are awaiting U.S. oil stockpile data for the week to Jan. 31. Analysts polled by Reuters expect crude inventories to have risen but gasoline and distillate inventories are likely to have declined.
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