Pause on Canada Tariffs & Retaliation From China Turn The Tables
- Mark Bowman
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CRUDE OIL
March Crude Oil is sharply lower this morning and back in a downtrend after yesterday’s tariff rally. The tariffs against Mexico and Canada were paused for 30 days in return for concessions the countries made on the border and crime issues, taking worries about US supply to refiners, especially the Midwest, off the table for a while. Shortly after tariffs on China took effect today, China’s Finance Ministry said it would impose 15% tariffs on imports of coal and LNG from the US and 10% on crude oil starting February 10. China imported 5.99 million barrels of crude oil from the US in January (193,000 bpd). This is not expected to have a dramatic effect on US exports, but in 24 hours the focus has shifted from a tight US supply to lower export demand. President Trump plans to speak with Chinese President Xi later this week. OPEC+ agreed to stick to its policy of gradually raising oil output starting in April. They also removed the US EIA from the sources used to monitor its production and adherence to supply pacts. For the US inventory reports this week, the early Reuters poll shows an average expectation for crude oil stocks to be +3.3 million barrels for the week ending January 31, with gasoline -300,000 and distillates -2.0 million. Refinery runs are expected to be unchanged at 83.5%.
NATURAL GAS
March Natural Gas is lower this morning but is holding up better than crude oil and the products. China’s “retaliation” against US LNG probably offers less of a threat than the postponement of the US tariffs against Canadian and Mexican crude oil offers relief to US supplies. China’s imports of US LNG totaled 4.16 million metric tons in the first 11 months of 2024. Their January imports totaled 190,000 tons versus 220,000 in December. Their overall imports have been averaging around 6.5 million tons/month recently, which puts US supply anywhere from 4%-12% of China’s total. The US is the top supplier to the world and number five for China. For the US storage report this week, the Reuters poll shows an average expectation for natural gas storage to be down 132 to 182 billion cubic feet last week. The 6-10 and 8-14-day forecasts call for below normal temperatures over roughly ¾ of the lower 48 states, with the exception of the southeast, which is expected to be warmer than normal.
PRODUCT MARKETS
The postponement of the tariffs against Canada and Mexico and the announcement of Chinese tariffs against US crude oil import have turned the product markets around. Most important are that heavy Canadian crude will still flow to Midwest refiners.
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