What If Steel And Aluminum Import Tariffs Are Extended To The Oil Industry?

Summary

This week President Trump’s announcement of a 25% tariff on steel imports and a 10% tariff on aluminum imports caught the market by surprise.

Crude oil is as strategic (if not more) to the US as steel and aluminum are and this further move cannot be completely ruled out.

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U.S. crude oil imports are rapidly decreasing every year and even more so from outside the NAFTA region.

Any tariff on crude oil imports would spark a rally in WTI prices and move it significantly higher than Brent which would hurt US refineries and benefit oil producing companies.

A 10% tariff on crude oil imports can make the WTI-Brent Arb go above +$5 while a 25% tariff can make it go above +$10.

This week President Trump’s announcement of a 25% tariff on steel imports and 10% imports on aluminum caught the market by surprise. It was widely criticised in the international media and leaders from Canada and the European Union threatened to retaliate. EU’s Jean Claude-Junker told German television "We will put tariffs on Harley-Davidson, on bourbon and on blue jeans — Levi's,".

Since this topic is just a few days old, we don’t know the full extent and depth of how far these trade wars can go. U.S. tariffs on the steel sector is not new. President George W. Bush had implemented them in March 2002. The tariffs were lifted in December 2003 as research showed it caused adverse effect on U.S. employment and growth.

The tariff then excluded NAFTA nations such as Canada and Mexico as it would have violated the rules of that organization.

This time around, we are unsure of whether NAFTA countries will be excluded. The impact of these tariffs would significantly harm Canada as it exports 90% of its steel to the U.S.

The proposed tariffs on steel and aluminum 5052 imports have already rattled the U.S. Energy industry. Executives worry that the cost of producing and moving oil will only increase if these tariffs get approved. If these tariffs do eventually get approved, it will lift the cost of oil production in the U.S. and reduce the oil production growth forecast for shale oil producers.