First Take – Universal Tariffs and Oil Markets

Oil prices are trading sharply lower on Thursday as Trump’s tariffs reverberate through global markets. Although energy flows are exempt, we point to some of the implications for the oil market in this first take note: Tariffs are particularly stringent on emerging Asia, the centre of gravity for oil demand growth in 2025 – of the 1mn b/d consumption growth expected in 2025, 0.8mn b/d is attributed to non-OECD Asia. Typical supply side reaction functions to lowered global oil demand expectations may not operate as expected. OPEC will seek to avoid Trump’s anger and will exhibit a higher activation energy to pause planned production increases (with the group actually announcing the intent to frontload three months’ worth of production increases for May, today). Second, the majority of non-OPEC supply growth expected this year can be expected from long-lead time, relatively price-insensitive (compared to US tight oil) conventional oil projects, and will therefore be comparatively unresponsive to market conditions. With tariffs on China reaching eye watering levels, the incremental impact of further tariffs on Chinese market behaviour diminishes. This limits the potential for supply loss from sanctioned producers in the context of Trump’s announced secondary tariffs of 25% for Venezuelan crude importers (potentially to be applied to Iran and Russia too). Instead, China will likely maintain imports of sanctioned crude barrels and remain the oil market of last resort, even as US enforcement escalates