The US crude benchmark outpaced gains in other oil markets after President Donald Trump announced tariffs that threaten flows from two of America’s biggest foreign suppliers.
West Texas Intermediate rose as much as $2.65 a barrel on Monday, compared with $1.67 for Brent, shrinking the gap between the two grades to the smallest since September 2023. The narrowing spread underscores the risk to supplies in the US, both from Canadian flows to the Oklahoma storage hub where American crude futures are priced, and from Mexican deliveries to the Gulf Coast.
Collectively, Canada and Mexico send about 4.5 million barrels a day to the US — which equates to just under 5% of the entire global market.
Already, big swings in some of the relative prices between different types of oil indicate the market is acting to reduce the risk of interrupted supply.
“Many people are looking for some kind of volumetric solver to the imposition of tariffs on Canada and Mexico,” said Harry Tchilinguirian, group head of research at Onyx Capital Group. “The real issue is that we have price distortion, which will cause a reset.”
Canada Crunch
One likely consequence is a weakening of Canadian prices to allow oil to continue flowing to US refiners. On Friday, before the tariffs were confirmed, Western Canadian Select sank to its lowest level relative to US crude at Houston since July, General Index data show. A move by Canadian producers to discount their crude significantly could allow supplies to continue crossing the border.
“We still expect Canadian oil producers to eventually bear most of the burden of the tariff,” Goldman Sachs Group Inc. analyst Daan Struyven wrote in a note to clients.
Gasoline Gains
Fuel prices also leaped, with premiums of gasoline and diesel over crude climbing by more than $1 a barrel intraday. If costs for crude rise so high that refiners are forced to operate less efficiently, there’s a wider risk of spikes in fuel prices for end-users.
Outright values of refined products have also advanced as higher feedstock costs are passed on to consumers. One company — Irving Oil Ltd. — has already warned customers in the northeastern US of price hikes.
“US refining will be less efficient, so refining margins and thus product costs for consumers will likely go up,” said Bjarne Schieldrop, chief commodities analyst at SEB AB.
Spread Surge
A change in the oil market’s structure underscores the potential for higher crude prices in the US Midwest. The nearest WTI contract was more than $1 higher than the following month on Monday, a bullish pattern indicating concerns about tight supplies in Oklahoma. That gauge more than doubled from Friday’s close at one point. JPMorgan Chase & Co. said about 70% of the 4 million barrels of oil imported by the US from Canada every day is processed in the Midwest.
“Given the importance of Canadian oil to the US, it is not surprising to see that WTI is trading stronger,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore.
Longer-Term Questions
Despite Monday’s sharp gains, prices are below levels touched last month. That shows that the long-term impact of the measures remains uncertain, with analysts pointing to a potential hit to global growth and potential last-minute efforts to halt the measures before they kick in Tuesday. The uptick in outright crude prices was only the largest in two weeks, after sanctions on Russian oil and cold weather bolstered the market at the start of the year.
“The first-round effects on crude and products are thus bullish on the margin,” SEB’s Schieldrop said. “The second-round effects over a bit of time are however negative as they are negative on GDP growth, on oil demand and finally on prices.”
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