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Texas Faces Double Trouble: Tariffs And Oversupply

While communities across the U.S. would likely feel the impact through higher prices on items like avocados and electronics, the stakes are especially high for border states like Texas. In 2023 alone, trade between Texas and Mexico surpassed $272 billion, solidifying Mexico as Texas’s largest trading partner, as first reported by the Houston Chronicle.

“If the Mexican president assumes Trump is bluffing, she’s wrong. He’s fully prepared to follow through,” Cruz said Tuesday on Fox Business. “My hope, though, is that Mexico will cooperate to avoid this and take steps to secure the border.”

The Perryman Group, an economic research firm based in Waco, estimates that a 25% tariff on Mexican imports could cost Texas $145 billion, with manufacturing and retail suffering the most significant losses.

“This is the same approach Trump used in 2017, claiming he wanted to finalize a deal before March,” Kenneth Smith Ramos, Mexico’s former director-general for international trade negotiations, wrote Wednesday on X, according to the Houston Chronicle. “Mexico didn’t cave then, and that gave us time to prepare, consult with the Senate, civil society, and the private sector. We must not rush.”

On Monday, Trump declared a national energy emergency, granting himself authority to loosen environmental regulations on energy infrastructure and expedite permitting for new transmission and pipeline projects. Regarding this, Kelvin Wong, senior market analyst at OANDA, highlighted to CNBC the uncertainty surrounding these policies. “The lack of clarity from the Trump administration on trade tariffs and the prospect of higher U.S. oil production could lead to more short-term volatility in the oil market,” Wong wrote in an email.

At the same time, according to  CNBC  U.S. crude stocks rose by 958,000 barrels for the week ending January 17, based on sources citing American Petroleum Institute (API) data released Wednesday. Gasoline inventories increased by 3.23 million barrels, while distillate stocks grew by 1.88 million barrels, they said.

Why are these increases alarming?

Crude Stocks
Crude oil stocks refer to the amount of unrefined oil stored in inventory, typically measured in barrels. This stockpile serves as a buffer for supply and demand imbalances. An increase in crude stocks usually indicates either reduced demand (lower refinery activity) or higher production, which can put downward pressure on oil prices.

Gasoline Inventories
Gasoline inventories measure the amount of refined gasoline stored for consumer and industrial use. These levels are closely watched because gasoline demand significantly influences the oil market. A rise in gasoline stocks could suggest lower consumer demand, higher refining output, or a combination of both. This can signal a potential surplus in the market, which may lead to lower gasoline prices.

Distillate Stocks
Distillates include products like diesel fuel and heating oil. These fuels are vital for transportation, agriculture, and heating, making them a key metric for economic activity. Higher distillate stock levels might reflect reduced demand from sectors like transportation or industry. Alternatively, it could indicate increased refinery output of distillate fuels.

While increased refinery output might demonstrate production capacity, it is alarming because it signals that production is exceeding actual demand in the market. This imbalance can lead to an oversupply, which may result in lower prices, decreased profitability for producers, and instability within energy markets. The impact could be especially pronounced in border states like Texas, where oil production plays a vital role in the economy.

RA Staff
RA Staff
Written by RA News staff.

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