Oil Prices Gain as Trump Tariffs Stoke Supply Worries

by Arunima Kumar (Reuters) Brent climbs 2%, WTI up 3%; U.S. to tax oil imports from Canada at 10%; Mexican energy imports to U.S. face 25% charge; Canada, Mexico supply a quarter of crude processed by US refineries, says EIA; OPEC+ unlikely to alter plans to unwind output cuts gradually, sources say

Feb 3 (Reuters) - Oil prices rose on Monday after U.S. President Donald Trump imposed tariffs on Canada, Mexico and China, raising fears of supply disruption, though gains were capped by concern over what could be an economically damaging trade war.

Brent crude futures were up $1.55, or 2%, at $77.22 a barrel by 1402 GMT, having earlier touched a peak of $77.34.

U.S. West Texas Intermediate crude futures were $2.19, or 3%, higher at $74.72 after reaching their highest since Jan. 24 at $75.18.

The tariffs, which will take effect on Feb. 4, include a 25% levy on most goods from Mexico and Canada, with a 10% tariff on energy imports from Canada and a 10% tariff on Chinese imports.

"The relatively soft stance on Canadian energy imports is likely rooted in caution," Barclays analyst Amarpreet Singh said in a note.

"Tariffs on Canadian energy imports would likely be more disruptive for domestic energy markets than those on Mexican imports and might even be counterproductive to one of the president's key objectives - lowering energy costs."

Goldman Sachs analysts expect the tariffs to have limited near-term impact on global oil and gas prices.

Canada and Mexico are the top sources of U.S. crude imports, together accounting for about a quarter of the oil U.S. refiners process into fuels such as gasoline and heating oil, according to the U.S. Department of Energy.

The tariffs will raise costs for the heavier crude grades that U.S. refineries need for optimum production, industry sources said.

Gasoline pump prices in the U.S. are certainly expected to rise with the loss of crude for refineries and the loss of imported products, said Mukesh Sahdev at Rystad Energy.

Trump has already warned that the tariffs could cause "short-term" pain for Americans.

"It is clear that the tariffs will have a negative effect on the global economy, with physical markets set to get tighter in the near term, pushing crude prices higher," said Panmure Liberum analyst Ashley Kelty.

Investors will also be watching for news from an OPEC+ meeting on Monday, with expectations that the oil producer group will stick to its current plan of gradual increases to output.

Rystad's Sahdev added that tariffs, if kept for long, have the potential to cause production losses in Canada and Mexico, which could help OPEC+ to unwind output curbs. READ MORE