Trump Tariffs: President Trump is set to impose 25% tariffs on imports from Canada and Mexico, citing concerns over illegal immigration and fentanyl trafficking, with an additional 10% tariff on Chinese goods under consideration. The move, set to take effect tomorrow, Feb. 1, under emergency powers, threatens to disrupt North America's integrated trade system, raising costs for consumers and businesses. Refinery costs for energy will be impacted, as crude oil is a major U.S. import from Canada and Mexico, potentially driving up gasoline prices. Canada and Mexico have vowed retaliation, with Canada targeting U.S. products like orange juice and Mexico warning of job losses and price hikes. While some speculate the tariffs may be announced but delayed for negotiation, uncertainty remains as industry groups seek clarity on the administration's next steps.
Russian Oil Production: Russia's oil production in 2024 fell by 2.8% from the previous year to 10.32 million barrels per day, as the country adhered to OPEC+ agreements to limit output. Despite Western sanctions, including an oil embargo and price cap, Russia successfully redirected crude exports to China and India. Meanwhile, natural gas production rose by 7.6%, with LNG exports increasing by 4%. Higher oil prices boosted Russia’s oil and gas revenues by 26% to $108 billion, with energy contributing about 30% of their federal budget.
Middle East Conflict: Hamas has announced it will release three hostages on Saturday in exchange for 90 Palestinian prisoners as part of an ongoing ceasefire deal. However, the ceasefire remains fragile, with rising tensions and uncertainty over future exchanges and military actions. The truce has led to the exchange of multiple hostages and prisoners, with further negotiations expected to secure more releases and a potential Israeli military withdrawal from Gaza. Meanwhile, humanitarian conditions in Gaza continue to deteriorate amid severe shortages of essential supplies.
Market Overview: Oil prices remained steady Friday but are on track for a weekly decline as markets await clarity on whether Trump’s proposed tariffs on Canada and Mexico would include oil imports. Uncertainty over Russian sanctions and upcoming OPEC+ Feb 3rd discussions on U.S. output also weighed on market sentiment. Analysts expect that if tariffs are implemented, they may include a grace period for negotiations, with oil potentially being excluded to avoid major disruptions in refinery operations.
Unemployment Update
U.S. economic growth slowed to a 2.3% annualized rate in Q4, down from 3.1% in Q3, as business investment weakened, partly due to a strike at Boeing. Despite this, consumer spending surged at a 4.2% rate, driven by a resilient labor market and solid wage growth. New unemployment claims fell to 207,000 last week, highlighting continued labor market strength.
The slowdown in growth was also influenced by businesses drawing down inventories and a surprise decline in imports. The Federal Reserve remains on a cautious path, keeping rates steady while inflation edged higher. With the Fed forecasting only two rate cuts in 2025, uncertainty looms over economic policy shifts, including potential tax cuts and trade restrictions. Investment in equipment contracted sharply, though residential investment rebounded slightly despite high mortgage rates.
Markets responded positively, with stocks rising and Treasury yields falling. The energy sector remains focused on economic demand signals, particularly as consumer strength persists despite headwinds.
Oil prices declined on Friday as the market awaited the U.S. decision to impose 25% tariffs on Canadian and Mexican imports, set to take effect on Saturday. WTI crude settled at $72.53 per barrel, down 20 cents, marking a second consecutive week of losses. Uncertainty remains over whether oil will be included in the tariffs, with analysts warning that restrictions on Canadian crude could drive up U.S. fuel prices. The White House reaffirmed the Saturday deadline, despite speculation about possible exemptions or delays. In response, Canadian Prime Minister Justin Trudeau warned that Canada would take immediate and forceful action if the tariffs proceed, acknowledging the potential for economic hardship. The announcement sent the U.S. dollar higher against the Canadian dollar and Mexican peso, while stocks fell as traders assessed the economic impact. Meanwhile, the market is also eyeing the upcoming OPEC+ meeting on Monday, where no major output policy shifts are expected.
