Oil News: U.S. Tariffs Shake Oil Markets—Short-Term Rally or Long-Term Trend?

Oil Prices Surge on Tariff Shock, Traders Eye Resistance Levels

Oil prices rallied sharply on Monday as traders reacted to the surprise tariffs imposed by the U.S. on Canada, Mexico, and China over the weekend. The move triggered a knee-jerk reaction in crude futures, pushing light crude oil prices higher before encountering key resistance levels. However, market participants remain skeptical about sustained gains, with many expecting prices to resume their downtrend once the initial shock subsides.

Technically, the rally stalled just below a critical 50% retracement level at $75.47, which now acts as resistance. A decisive break above this level could signal further upside, though analysts suggest this would likely be driven by short-covering rather than fresh buying interest. On the downside, immediate support is found at $71.51, followed by the 200-day moving average at $70.86 and the 50-day moving average at $70.77.

At 12:11 GMT, Light Crude Oil Futures are trading $74.51, up $1.98 or +2.73%.

Tariff Fallout Raises Concerns Over Supply and Refinery Costs

The newly announced tariffs include a 25% levy on most goods from Mexico and Canada, alongside a 10% tariff on Canadian energy imports and Chinese imports. While the policy aims to reshape trade relations, its impact on oil markets remains uncertain. Some analysts argue that the tariffs on Canadian energy imports could prove counterproductive, as they would likely drive up U.S. energy costs rather than lowering them.

Canada and Mexico supply approximately 25% of the crude oil processed by U.S. refineries, making them critical sources of heavier crude grades needed for optimized refining operations. With the new tariffs raising costs on these imports, refiners may be forced to seek alternative supplies from OPEC and Latin America, which could further disrupt the market.

Gasoline prices are already reacting, with U.S. gasoline futures surging 2.5% to $2.11 per gallon, hitting their highest levels since mid-January. The higher costs for refiners, coupled with a potential drop in crude imports, could lead to rising fuel prices for American consumers.

Goldman Sachs: Limited Near-Term Impact, But Risks Remain

Despite Monday’s price jump, Goldman Sachs analysts expect the tariffs to have a limited near-term effect on global oil and gas prices. They argue that the U.S. natural gas import decline from Canada will be too small to significantly impact prices, while any wider discount on Canadian crude will likely be absorbed by producers.

However, if the tariffs remain in place for an extended period, they could result in production losses in Canada and Mexico, potentially leading to tighter physical markets. This scenario could support oil prices in the longer term, especially if OPEC+ maintains its current supply strategy.

Market Outlook: Short-Term Strength, Long-Term Uncertainty

While crude prices are benefiting from a short-term rally on tariff-driven supply fears, the broader outlook remains uncertain. If the initial shock fades, prices could struggle to hold gains, especially with technical resistance at $75.47 capping upside momentum. Traders are also watching OPEC+ developments closely, as any changes in production strategy could further influence market direction.

For now, oil prices remain vulnerable to volatility, with resistance and support levels playing a key role in shaping near-term trading patterns. A break above resistance could invite further upside, but without strong fundamental backing, the move is unlikely to be sustained.

More Information in our Economic Calendar.