US tariffs aimed against its largest trading partners creates both opportunity and uncertainty for traders, but the threat alone also dissuades trading oil too far forward.
"It's not just whether tariffs come in, but it's the threat of tariffs coming in," Equinor vice president of crude trading and refinery optimization Simon James told delegates at the Argus Global Crude Summit Americas in Houston, Texas, on Thursday. The expectation of tariffs has the risk of drying up some forward trading.
"People will be nervous about committing too far forward," said James, highlighting the severity of the threats made by US president Donald Trump against its North American neighbors.
"The fact that the initial tariffs around Canada and Mexico were so punitive at 25pc, how someone handles that risk ... is extremely difficult," said Simon. "I think that's something the market is starting to work through and I don't think there's a good answer yet."
Buying patterns have already been disrupted with traders re-thinking traditional flows in light of the potential tariffs, whether they come or not.
"Already today, traders and people who are trying to connect the dots, are looking into how they should change their buying patterns," SOCAR chief trading officer Taghi Taghi-Zada said on the panel. While the actual imposition of tariffs would be an important milestone, he said, the fact people are speaking about them with confidence has already affected the markets.
Traders on the edge of information flow will be better equipped to make some kind of prediction and manage exposures, said Taghi-Zada, while Barbara Harrison, vice president of crude supply and trading at Chevron, expects news headlines are what will continue to drive volatility in the near term.
"For us as traders, it also creates market opportunity, but it certainly does create a lot of market uncertainty," said Harrison.
"We're going to continue to have that long-term fundamental drive on markets, and short-term headline drive on markets," said Harrison.
She expects the short-term to be centered around tariffs and conflict in the Middle East and long-term related to Chinese demand and supply from Opec+ nations.
