Tariffs Seen Disrupting Oil Market, Raising US Pump Prices

On Feb 2, 2025

(Bloomberg) — US President Donald Trump’s tariffs on imports from Canada and Mexico threaten to disrupt North America’s tightly integrated oil market and push up gasoline prices for American motorists.

Most Read from Bloomberg

Trump on Saturday signed orders implementing a levy of 10% on imports of Canadian energy, along with general levies of 25% on Canada and Mexico and 10% on China, according to White House officials who briefed reporters on condition of anonymity. The tariffs take effect at 12:01 a.m. on Tuesday.

Tariffs on Canada and Mexico may curtail shipments from the top two suppliers of foreign crude to the US. Almost all of Canada’s roughly 4 million barrels of daily crude exports flow to its southern neighbor, and about 500,000 barrels comes into the US from Mexico, the bulk of it purchased by Valero Energy Corp. for its plants on the Gulf Coast.

In the US Midwest, which is home to 23% of US refining capacity, refiners are so reliant on Canadian supplies that pipelines that once carried oil from the Gulf Coast to the Midwest have been reversed, leaving fuelmakers little access to alternative grades of oil.

“Canadian oil tariffs would risk unpopular, if temporary, gasoline price increases in the US Midwest,” Goldman Sachs Group Inc. analysts including Samantha Dart and Daan Struyven said in a recent note.

Energy imports from Canada were hit with the lower 10% rate to minimize upward pressure on gasoline and home-heating oil prices, the White House officials said.

Canada is responding to the US levies with 25% counter-tariffs on C$155 billion ($107 billion) worth of American-made products. Prime Minister Justin Trudeau, speaking at a news conference, didn’t specifically rule out measures such as taxing or restricting energy exports to the US, but said no one industry or region should bear an undue burden of Canada’s response.

Last week, fuelmakers warned that the levies would erode refining profits and upend oil markets. US plants could cut refining rates in response, executives at Valero executives said Thursday, while Phillips 66 cautioned that Canadian crude prices will tumble.

“We are hopeful a resolution can be quickly reached with our North American neighbors so that crude oil, refined products and petrochemicals are removed from the tariff schedule before consumers feel the impact,” Chet Thompson, president of the American Fuel & Petrochemical Manufacturers trade group, said in an emailed statement.

The American Petroleum Institute said in a statement it will continue to work with the Trump administration on full exclusions “that protect energy affordability for consumers, expand the nation’s energy advantage and support American jobs.”

The tariffs’ implementation will be key in determining the effect on the market. If producers are allowed to export oil off the Gulf Coast to non-US buyers without tariffs, the hit to Canadian oil prices would be muted. Also unclear is how the tariffs will affect the western Canadian oil that’s shipped through the US en route to Canadian refineries in Ontario and Montreal.

Western Canadian Select crude prices have already weakened in anticipation of the levies, trading at $15.50 a barrel less than US benchmark West Texas Intermediate on Friday, the widest discount since July 30, according to General Index prices posted on Bloomberg.

A 10% tariff may widen the discount to about $16 to $17 a barrel, Eric Nuttall, a partner and senior portfolio manager at Ninepoint Partners, said in a post on X on Friday.

Still, Canadian producers may be partly cushioned by a weaker Canadian dollar, he said. Also, maintenance season in the oil sands typically starts around April and reduces crude output, and Nuttall said that work may help blunt the tariff effects as well.

‘Already Discounting’

“I would go as far to say that most stocks are already discounting a 10% tariff,” he said in the post.

Canada has one partial protection against the tariffs: the newly expanded Trans Mountain pipeline running from Alberta to a marine terminal near Vancouver. The expanded line, which started operation in May, is underused because of its expensive tolls, but it may fill up to maximize tariff-free shipments to Asia at the expense of California refineries, which now import about half the oil from the line.

The Canadian Association of Petroleum Producers trade group said it’s difficult to predict how the tariffs will affect supply, demand and trading patterns, but that it’s “deeply disappointed” by the tariffs.

“These tariffs undermine our mutually beneficial relationship and are likely to increase costs and inflation for American consumers while damaging the economies of both countries,” CAPP President Lisa Baiton…

Bloomberg Canada Disrupting Market..Mexico Oil oil prices Prices

Tariffs Seen Disrupting Oil Market, Raising US Pump Prices

Get more stuff like this in your inbox

Get more stuff like this
in your inbox