US president-elect Donald Trump's plans to enact new tariffs, especially those targeting Mexico and Canada, may curb demand for US bunker fuel and ripple across international markets.
The proposed 25pc tariffs on imports from Mexico and Canada could affect all products coming into the US from those countries, including the significant volumes of residual fuel oil from Mexico and Canada that US Gulf coast and east coast buyers import. This could lift prices of residual fuel oil sold for bunkering in US Gulf coast and east coast ports, prompting some ship owners calling there to instead fuel outside the US in more price-competitive ports. Depending on their routes, ship owners could shift some of their bunker demand to Singapore, Rotterdam, Fujairah and Panama.
Mexico alone supplied 74pc of the residual fuel oil imported to the US Gulf coast and and 29pc to the east coast in the first nine months of the year, according to US Energy Information Administration (EIA) data (see table). Meanwhile, Canada supplied 7pc and 16pc of the fuel oil imported to the US Gulf and east coasts, respectively. The US east coast imported 46,730 b/d of residual fuel oil and produced 35,000 b/d in the first nine months of the year (see chart). By comparison, the US Gulf coast imported 48,909 b/d and produced 161,667 b/d.
Prices of Canadian and Mexican residual fuel oil exports to the US are typically benchmarked against US Gulf and east coast residual fuel oil prices.
Should Trump implement the 25pc tariffs, companies bringing Canadian and Mexican residual fuel oil to the US could bid lower to try to offset their tariff costs. Lower bids from US buyers could redirect some of the Mexican and Canadian residual fuel oil exports to buyers in northwest Europe, Panama and Singapore. Or if Canadian and Mexican producers are not able to find lucrative clients outside of North America, they may have to settle for lower profit margins for their residual fuel oil exports to the US.
On the US west coast, Trump's campaign promise to impose tariffs of up to 60pc on imports from China has already prompted some shippers to front-load container cargoes.Potential additional tariffs could slow container ship traffic from China to the US' busiest container ship ports — Los Angeles and Long Beach in California.
There is a lot of uncertainty around the extent of Trump's tariff plans, as some analysts view his threats as aimed at generating leverage for negotiations. But provided that they are put into place, the Mexico and Canada tariffs could push US east and Gulf coast importers to purchase more residual fuel oil from other countries like Algeria, Colombia, Iraq, Kuwait, Nigeria, Peru and Saudi Arabia.
An increase in Chinese tariffs could prompt US west coast importers to shift their purchases to other southeast Asian countries such as Vietnam, Indonesia, Malaysia and Thailand.
But once the dust settles from the geographical reshuffling, new trading networks may have been established, and the US bunker market could settle into a new normal.
| US Gulf and east coasts residual fuel oil imports, Jan-Sep 2024 | '000 b/d | |||
| East coast | % of all countries | Gulf coast | % of all countries | |
| Mexico | 13.6 | 29% | 36.1 | 74% |
| Canada | 7.4 | 16% | 3.3 | 7% |
| All countries | 46.7 | 100% | 48.9 | 100% |
| — EIA | ||||
