By Alex Kimani - Feb 03, 2025
Stanchart: Tariffs on Canadian oil could lead to reduced refinery runs and higher gas prices in the U.S. Midwest.
Analysts predict Mexico may opt to divert exports to Asia and Europe, significantly reducing shipments to the U.S.
Despite the 10% levy, Canadian crude flows to the U.S. are unlikely to be disrupted.
Mexico’s President Claudia Sheinbaum has announced that U.S. tariffs are on hold for one month after she held talks with President Trump and pledged to send 10,000 troops to the border to fight drug trafficking. Trump also spoke to Canadian Prime Minister Trudeau to discuss the punitive tariffs, saying that Ottawa has “misunderstood” the situation. Over the weekend, Trump slapped Canada and Mexico with duties of 25% and China with a 10% levy. Oil flows facing tariffs represent 44% of U.S. oil product imports, 69% of crude oil imports and 81% of heavy crude oil imports. Last week, Trump engaged in his usual isolationist bluster, claiming that the U.S. does not need Canadian commodities including oil and lumber. “We don’t need anything they have. We have unlimited Energy, should make our own Cars, and have more Lumber than we can ever use. Without this massive subsidy, Canada ceases to exist as a viable Country,” he said while speaking at the World Economic Forum.
However, the experts have pointed out that Trump needs a reality check.
“It’s not factually correct,” Richard Masson, an executive at the University of Calgary’s School of Public Policy, told CTV News. “They do need our oil. We ship diluted bitumen, so four million barrels a day go to the states; more than two million barrels a day of that is diluted bitumen. It goes to refineries that are specifically configured to process it, especially in Minneapolis, Chicago and Wood River. That’s why they rely on it so heavily. So, the first part is hopefully we can talk to him and educate him if he doesn’t understand it. I’m sure that the big refiners in the U.S. are doing that now. But if it turns out that he’s going to put a tariff on it, then our challenge will be what happens to overall demand.”
Similarly, commodity analysts at StandardChartered have painted a dire picture of the situation, saying oil buyers in the Midwest will almost certainly pay the price of the tariffs thanks to the limited substitutability of Canadian crude with other oils resulting in strong pass-through to retail prices.
According to the analysts, the U.S. imported ~ 6.6 million barrels per day (mb/d) of crude oil in the first 10 months of 2024, of which 4.0 mb/d was heavy oil for use in upgraded refineries with cracking units. Canada provided 75% of U.S. heavy crude oil imports in 2024, with its market share having steadily increased since 2000, squeezing outflows from Mexico, Venezuela and Colombia. Some 80% of Canada's crude production flows downstream to U.S. refiners, with U.S. imports of Canadian crude reaching a record high of 4.42M bbl/day in the week ending January 3, according to the U.S. Energy Information Administration.
Unfortunately for Midwest refineries, heavy oil cannot easily be substituted with the light oil that makes up most of U.S. shale oil production. StanChart has pointed out that such a switch would create a significant loss of optimization in the highly expensive cracking units that require feed from vacuum distillation of the heavy residual obtained by simple distillation. Canada has supplied 99.89% of all heavy imports into Midwest refineries over the past decade; the low substitutability of this flow implies that a tariff would largely feed through to local retail prices. Refiners will also have to cut runs due to the loss of refinery optimisation.
And, the increase in fuel prices would be substantial: According to GasBuddy analyst Patrick De Haan, consumers in the Midwest could end up paying ~10% extra for their gas if Trump goes ahead with his tariffs. Tom Kloza at the Oil Price Information Service has predicted that the tariffs could raise gasoline prices by $0.35/gal in parts of the country if the tariffs were passed completely along to consumers.
Meanwhile, StanChart has predicted that Mexico’s exports to the U.S. are likely to all but cease, with oil being rerouted into Asia and Europe. Last month, the European Union and Mexico agreed to a revamped free-trade agreement days before Trump began a second term. Mexico, in particular, pushed hard to revamp the trade deal with the EU ahead of Trump’s inauguration as a way to show strength before the review of the US-Mexico-Canada trade agreement, known as USMCA. The U.S. is, by far, Mexico’s biggest trade partner, accounting for 83% of Mexico’s trade relationship. Trump has criticized the EU’s trade practices and said he would impose duties on exports by the bloc. He’s also said he’d impose 25% tariffs on goods from Mexico.
“This landmark deal proves that open, rules-based trade can deliver for our prosperity and economic security, as well as climate action and sustainable development,” European Commission President Ursula von der Leyen said in a statement.
By Alex Kimani for Oilprice.com
Canadian Crude Becomes a Bargain for China as US Tariffs Bite
U.S. tariffs on Canadian crude make the barrel more expensive for U.S. refiners.
The tariffs could give European and Asian refiners a competitive edge.
Canada is the biggest supplier of heavy crude to American refiners, exporting it at a rate of close to 4 million barrels daily.
President Donald Trump’s threatened tariffs on the United States' two largest trade partners—Canada and Mexico—have become a reality. Canadian imports will now face a 25% tariff, while Mexico has secured a 30-day pause. Even with a reduced tariff on Canadian crude, the added costs will make refining feedstocks more expensive for U.S. refiners, giving their European and Asian competitors a competitive edge.
Trump has picked tariffs as his favored trade policy weapon to balance a trade deficit the U.S. is running with the European Union—next on the tariff chopping block—and as a means of forcing U.S. neighbors to tighten border control with a view to stemming illegal immigration and fentanyl smuggling. The decision to impose the tariffs on Canada and Mexico has been widely criticized, with critics noting it would hurt American taxpayers, whom Trump promised cheaper fuel.
Canada warned as much early on. “Canadian energy and resources—including oil and critical minerals—underpin the long-term economic security and prosperity of both Canada and the United States to protect our energy security and reduce our reliance on the resources of non-like-minded countries,” Canada’s foreign minister, Melanie Jolie, told the Financial Times last month. She went on to warn the tariff push could force U.S. refiners to swap Canadian for Venezuelan crude in what would be an ironic twist.
Related: U.S. Natural Gas Prices Surge On Canada Tariffs, Massive Withdrawals
Canada is the biggest supplier of heavy crude to American refiners, exporting it at a rate of close to 4 million barrels daily, which makes it the biggest exporter of crude oil to the U.S. in general. Mexican crude oil exports north of the border are much smaller, at less than half a million barrels daily, but they still comprise the second-largest share of foreign oil in U.S. refiners’ mix.
According to analysts that Reuters spoke to in the wake of the tariff announcement, the tariffs will hit refiners, shrink their margins and eventually force production curbs—to the potential benefit of refiners in Europe and Asia because as local production of fuels shrinks, imports would have to increase in what seems to be another ironic twist of the Trump tariff crusade.
“Less U.S. diesel exports would support European margins, while more export opportunities may remain in the strongly pressured gasoline market,” Vortexa chief economist David Wech told the publication, adding that the tariffs would be “overall a positive for European refiners, but likely not for European consumers,” as they would squeeze the local supply of fuels.
What could further complicate the situation is Trump’s plan to give the European Union the same tariff treatment he just gave Mexico and Canada, which means European fuel exports to the U.S. would also fall victim to tariffs. This would affect prices as well, both in Europe and the United States—and, of course, prompt retaliatory measures as it did from Canada.
Justin Trudeau already said Canada’s federal government would respond in kind to Trump’s tariffs with a 25 levy on U.S. imports worth some $21 billion, effective Tuesday, and then follow with extending the levy to another $85 billion worth of imports. He also suggested export curbs could be added to the retaliation. “There are a number of different industries and regions of the country that can have greater leverage over the US," Trudeau said, as quoted by Argus. "One thinks of the oil industry for example.”
Meanwhile, Asian—and, more specifically, Chinese—refiners will be more than happy to take in Canadian and Mexican oil that has become too expensive for U.S. refiners, according to analysts interviewed by Reuters. One analyst, founder of Next Barrel, told the publication crude oil sellers would be forced to discount their crude in order to find alternative buyers to U.S. refiners—a most welcome development for Asian refiners who appreciate a bargain.
Another commentator pointed out that in China, demand for refinery feedstocks is about to increase, so it is an opportune moment for refiners there to stock up on discount-heavy from Canada—the expanded Trans Mountain pipeline will come in handy in this respect.
Trump himself has admitted there will be a negative impact from the tariffs on Americans, describing it as “short term” and adding, “I don't expect anything dramatic,” and “They owe us a lot of money, and I'm sure they're going to pay.” Trump also confirmed that the European Union is next, but did not specify a date.
“We may have short term some little pain, and people understand that. But in the long term, the United States has been ripped off by virtually every country in the world,” the U.S. president said, as quoted by Reuters. Indeed, the whole tariff spat could turn out to be a short-term thing as Trump has said he would talk to Justin Trudeau and Claudia Sheinbaum this week. If they fail to reach a mutually beneficial agreement, however, it’s win time for refiners in Europe and Asia—until they get hit by tariffs, too.
By Irina Slav for Oilprice.com
By Irina Slav - Feb 03, 2025
U.S. tariffs on Canadian crude make the barrel more expensive for U.S. refiners.
The tariffs could give European and Asian refiners a competitive edge.
Canada is the biggest supplier of heavy crude to American refiners, exporting it at a rate of close to 4 million barrels daily.
President Donald Trump’s threatened tariffs on the United States' two largest trade partners—Canada and Mexico—have become a reality. Canadian imports will now face a 25% tariff, while Mexico has secured a 30-day pause. Even with a reduced tariff on Canadian crude, the added costs will make refining feedstocks more expensive for U.S. refiners, giving their European and Asian competitors a competitive edge.
Trump has picked tariffs as his favored trade policy weapon to balance a trade deficit the U.S. is running with the European Union—next on the tariff chopping block—and as a means of forcing U.S. neighbors to tighten border control with a view to stemming illegal immigration and fentanyl smuggling. The decision to impose the tariffs on Canada and Mexico has been widely criticized, with critics noting it would hurt American taxpayers, whom Trump promised cheaper fuel.
Canada warned as much early on. “Canadian energy and resources—including oil and critical minerals—underpin the long-term economic security and prosperity of both Canada and the United States to protect our energy security and reduce our reliance on the resources of non-like-minded countries,” Canada’s foreign minister, Melanie Jolie, told the Financial Times last month. She went on to warn the tariff push could force U.S. refiners to swap Canadian for Venezuelan crude in what would be an ironic twist.
Related: U.S. Natural Gas Prices Surge On Canada Tariffs, Massive Withdrawals
Canada is the biggest supplier of heavy crude to American refiners, exporting it at a rate of close to 4 million barrels daily, which makes it the biggest exporter of crude oil to the U.S. in general. Mexican crude oil exports north of the border are much smaller, at less than half a million barrels daily, but they still comprise the second-largest share of foreign oil in U.S. refiners’ mix.
According to analysts that Reuters spoke to in the wake of the tariff announcement, the tariffs will hit refiners, shrink their margins and eventually force production curbs—to the potential benefit of refiners in Europe and Asia because as local production of fuels shrinks, imports would have to increase in what seems to be another ironic twist of the Trump tariff crusade.
“Less U.S. diesel exports would support European margins, while more export opportunities may remain in the strongly pressured gasoline market,” Vortexa chief economist David Wech told the publication, adding that the tariffs would be “overall a positive for European refiners, but likely not for European consumers,” as they would squeeze the local supply of fuels.
What could further complicate the situation is Trump’s plan to give the European Union the same tariff treatment he just gave Mexico and Canada, which means European fuel exports to the U.S. would also fall victim to tariffs. This would affect prices as well, both in Europe and the United States—and, of course, prompt retaliatory measures as it did from Canada.
Justin Trudeau already said Canada’s federal government would respond in kind to Trump’s tariffs with a 25 levy on U.S. imports worth some $21 billion, effective Tuesday, and then follow with extending the levy to another $85 billion worth of imports. He also suggested export curbs could be added to the retaliation. “There are a number of different industries and regions of the country that can have greater leverage over the US," Trudeau said, as quoted by Argus. "One thinks of the oil industry for example.”
Meanwhile, Asian—and, more specifically, Chinese—refiners will be more than happy to take in Canadian and Mexican oil that has become too expensive for U.S. refiners, according to analysts interviewed by Reuters. One analyst, founder of Next Barrel, told the publication crude oil sellers would be forced to discount their crude in order to find alternative buyers to U.S. refiners—a most welcome development for Asian refiners who appreciate a bargain.
Another commentator pointed out that in China, demand for refinery feedstocks is about to increase, so it is an opportune moment for refiners there to stock up on discount-heavy from Canada—the expanded Trans Mountain pipeline will come in handy in this respect.
Trump himself has admitted there will be a negative impact from the tariffs on Americans, describing it as “short term” and adding, “I don't expect anything dramatic,” and “They owe us a lot of money, and I'm sure they're going to pay.” Trump also confirmed that the European Union is next, but did not specify a date.
“We may have short term some little pain, and people understand that. But in the long term, the United States has been ripped off by virtually every country in the world,” the U.S. president said, as quoted by Reuters. Indeed, the whole tariff spat could turn out to be a short-term thing as Trump has said he would talk to Justin Trudeau and Claudia Sheinbaum this week. If they fail to reach a mutually beneficial agreement, however, it’s win time for refiners in Europe and Asia—until they get hit by tariffs, too.
By Irina Slav for Oilprice.com
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