Trump Tariffs: On Saturday, Trump announced a 25% tariff on imports from Canada and Mexico, and a 10% tariff on goods from China, effective Tuesday, to address a national emergency related to fentanyl and illegal immigration, according to White House officials. Energy products from Canada will face a 10% duty, while Mexican energy imports will be subject to the full 25% tariff. Industry sources indicated that these tariffs on the two largest sources of U.S. crude imports will increase costs for the heavier crude grades required by U.S. refineries for optimal production, potentially reducing profitability and leading to production cuts. Midwest refiners will keep purchasing Canadian crude despite the tariff and will likely just pass the additional costs on to consumers at the gas pump. According to another source, "Folks in the Midwest could look forward to spending an extra 20 or 25 cents a gallon."

OPEC: OPEC+ is expected to stick to its current plan of gradually increasing output from April, despite U.S. President Donald Trump’s calls for lower prices, according to delegates from the producer group who spoke to Reuters. Four OPEC+ sources indicated that the Joint Ministerial Monitoring Committee meeting on Monday, starting at 0700 CST, is unlikely to recommend any output increase beyond what is already planned. All sources requested anonymity. In December, OPEC+ extended its latest round of production cuts through the first quarter of 2025, delaying the planned output increase to April. This extension is the latest in a series of delays caused by weak demand and rising supply from outside the group. According to Reuters calculations, the plan involves gradually unwinding 2.2 million barrels per day (bpd) of cuts, starting in April with a monthly increase of 138,000 bpd, including an increase for the United Arab Emirates. These hikes will continue until September 2026.

Russian Refinery: Ukraine launched dozens of drones on Monday, targeting energy facilities in southern Russia, which caused fires at a major oil refinery and gas processing plant and disrupted flights from the Volga to the Caucasus Mountains, according to Russian and Ukrainian officials. Russia claims these attacks constitute terrorism, escalate the war, and are supported by the West with weapons and targeting information. Ukrainian officials assert their right to retaliate against Russia, stating that Russia’s energy, transport, and military infrastructure are crucial to Moscow’s war efforts.

Market Overview: The energy complex is off to the races this morning with new tariffs being imposed to Canada, Mexico and China. The big change for oil was that President Trump imposed a 10% tariff on Canadian crude oil, a change from the previously anticipated tariff of 25%. President Trump did recognize that these tariffs could cause "short-term" pain for Americans at the pump, however the definition of "short term" and "pain" is yet to be seen. Also, noteworthy is that OPEC is planned to meet today but analysts don't expect any surprises from the group. This should be an interesting week of trade as we follow the headlines. 

U.S. Crude imports

According to Energy Information Administration (EIA) data, Canadian and Mexican crude made up about 28% of the crude processed by U.S. refiners in 2023, with Midwest inland refineries particularly dependent on Canadian oil. The imposed tariffs are causing chaos in the markets early this morning as investors try to grasp the complete impact to a now more expensive input cost for many Midwest refineries. What is also concerning is the fact U.S. refiners will face limitations in substituting the more plentiful light WTI crude for Canadian and Mexican oil due to their differing qualities. Many Midwest refineries have been upgraded to process the heavier Canadian crude in contrast to a lighter crude from down south. 

Oil prices experienced volatility on Monday, as the market was reacting to U.S. President Donald Trump’s announcement of tariffs on Canada, Mexico, and China. Early in the session, the complex was up very strong, but waivered throughout the day. A 10% tariff on Canadian crude is still in play, however, today Trump paused the new tariffs on Mexico for one month after Mexico agreed to strengthen its northern border to curb the flow of illegal drugs, particularly fentanyl. OPEC made no real surprises with its plan to stick to its policy of gradually raising oil output. Both gas and diesel saw strong gains today however trade was a little all over the board throughout the session. We should get more clarity on the direction of the energy complex as the week goes on.