US Oil Outpaces Global Price Gains as Tariffs Menace Supply

(Bloomberg) -- The US crude benchmark outpaced gains in other oil markets after President Donald Trump announced tariffs that threaten flows from two of America’s biggest foreign suppliers.

West Texas Intermediate rose as much as $2.65 a barrel on Monday, compared with $1.67 for Brent, shrinking the gap between the two grades to the smallest since September 2023. The narrowing spread underscores the risk to supplies in the US, both from Canadian flows to the Oklahoma storage hub where American crude futures are priced, and from Mexican deliveries to the Gulf Coast.

Collectively, Canada and Mexico send about 4.5 million barrels a day to the US — which equates to just under 5% of the entire global market.

Already, big swings in some of the relative prices between different types of oil indicate the market is acting to reduce the risk of interrupted supply.

“Many people are looking for some kind of volumetric solver to the imposition of tariffs on Canada and Mexico,” said Harry Tchilinguirian, group head of research at Onyx Capital Group. “The real issue is that we have price distortion, which will cause a reset.”

Canada Crunch

One likely consequence is a weakening of Canadian prices to allow oil to continue flowing to US refiners. On Friday, before the tariffs were confirmed, Western Canadian Select sank to its lowest level relative to US crude at Houston since July, General Index data show. A move by Canadian producers to discount their crude significantly could allow supplies to continue crossing the border.

“We still expect Canadian oil producers to eventually bear most of the burden of the tariff,” Goldman Sachs Group Inc. analyst Daan Struyven wrote in a note to clients.

Gasoline Gains

Fuel prices also leaped, with premiums of gasoline and diesel over crude climbing by more than $1 a barrel intraday. If costs for crude rise so high that refiners are forced to operate less efficiently, there’s a wider risk of spikes in fuel prices for end-users.

Outright values of refined products have also advanced as higher feedstock costs are passed on to consumers. One company — Irving Oil Ltd. — has already warned customers in the northeastern US of price hikes.

“US refining will be less efficient, so refining margins and thus product costs for consumers will likely go up,” said Bjarne Schieldrop, chief commodities analyst at SEB AB.