President Donald Trump has decided to postpone the imposition of 25% tariffs on Canada and Mexico for one month following discussions with his counterparts on Monday. The tariffs were originally scheduled to take effect on June 1. This delay comes amidst concerns about the potential impact on the US oil market, which could result in higher gasoline prices for American consumers.
Canada and Mexico play a significant role in the US oil supply chain, exporting approximately 4 million barrels per day (b/d) and 0.5 million b/d, respectively, to US refiners. The tariffs could have disrupted this flow, leading to increased costs for US consumers at the pump. The decision to delay the tariffs provides a temporary reprieve, allowing time for further discussions and negotiations.
Russia, another major player in the global oil market, is producing oil at levels consistent with its OPEC+ quota. This production stability contrasts with the situation faced by US oil companies, which are privately owned and obligated to prioritize shareholder returns. Unlike OPEC producers, these companies must contend with high breakeven prices for new oilfields, which hover around USD 65 per barrel.
The global oil market faces an anticipated excess supply of approximately 0.5 million b/d by 2025. This surplus is expected to contribute to a decline in oil prices, with Brent crude projected to fall from USD 77 per barrel to USD 70 per barrel by 2025. Despite this forecasted decrease, Saudi Arabia remains uninterested in reducing prices, even if it means gaining market share. The Saudi government is reliant on higher oil prices, needing them to exceed USD 90 per barrel by 2025 to balance its budget.
Non-OPEC+ producers are anticipated to continue increasing their production, further complicating the ability of OPEC+ producers to regain market share. The combination of moderate demand growth and elevated non-OPEC+ production is expected to drive down the price of oil in 2025.
BNP Paribas, a well-respected financial institution, prepared a report highlighting these trends for professional investors. The report underscores the complexities and interconnectedness of global oil markets and the influence of geopolitical decisions on pricing dynamics.
The temporary delay in tariffs provides a critical window for stakeholders to address these issues before they escalate further. The potential for increased gasoline prices looms large over the US consumer market, making it imperative for ongoing dialogue and strategic planning among North American partners.