US tariffs on oil imports may increase gas prices

01/02/2025

US tariffs on oil imports may increase gas prices

THE new U.S. administration has implemented a policy of imposing tariffs on countries that have trade relations with the U.S. for the import of goods and services. The best example is Canada and Mexico, from which the U.S. imports around 4.5 million barrels of heavy oil daily - four million barrels from Canada and the rest from Mexico .

However , these tariffs could inadvertently lead to higher oil prices for U.S. consumers at the petrol stations. As a result, the U.S. may end up importing this heavy oil from Venezuela. Imposing tariffs on oil imports to the U.S. is not an effective way to reduce inflation or restore consumer confidence, especially when the country remains a major oil importer. The new U.S. administration may need to reconsider its energy policy, as tariffs are unlikely to achieve the intended economic benefits. It is also worth noting that oil prices are currently decreasing and may continue to fall, partly due to the U.S. administration’s push for OPEC to reduce prices by releasing more oil into the market.

However, OPEC+ is holding back about six million barrels of oil to prevent a price collapse. The question remains: how can OPEC+ release more of this “prisoned” oil when global demand, particularly from China, is struggling, and the market can’t absorb additional supply? According to oil experts, oil prices are expected to remain in the $74-$75 range for this year, with little chance of surpassing $80 unless an extraordinary event occurs. Even if prices do reach $80, it is unlikely they will stay at that level for long. For U.S. oil producers, particularly shale oil producers, prices below the mid-$70s are not sustainable. In order to maintain the position of the U.S. as the world’s largest oil producer at 13.5 million barrels per day currently, oil prices must remain relatively high.

This is required for continuing to grow production toward the ultimate goal of 20 million barrels per day. The new U.S. administration may not be fully aware about the cost of producing a barrel of oil in the U.S., which ranges between $70 and $80, including dividends. Given these costs, it is unlikely oil prices will drop below $70. Imposing tariffs on imported oil will not benefit the U.S. and certainly will not contribute to reducing inflation or the cost of living. Instead, reducing taxes and tariffs may offer a better path forward than the current approach.

By Kamel Al-Harami Independent Oil Analyst

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