Western Canadian crude will continue to flow to US refiners, but at a greater discount if President Donald Trump enacts tariffs on imports from that country, Phillips 66 said today.
In the event of tariffs, the Western Canadian Select (WCS) discount to US light sweet crude WTI will eventually widen to incentivize crude to move into the US, Phillips 66 executive vice president of commercial Brian Mandell said during an earnings call. WCS' discount to WTI was around $15.25/bl on Friday afternoon.
In the Rocky Mountain and midcontinent regions, where refiners have fewer alternative supplies, the "crack margins will also have to do some work," he said.
Mandell said that the first effect of Canadian tariffs would be the filling of the 590,000 b/d Trans Mountain Expansion (TMX) pipeline, which sends crude to Canada's west coast, followed by a replenishing of storage in western Canada. TMX has run well below its full capacity since startup in May 2024 but it is not clear how much spare capacity is left. About 374,300 b/d of crude from the combined Trans Mountain was exported via tanker in January, according to data from Vortexa.
About 80pc of Canada's 5mn b/d of crude production flows downstream to US refiners, with US imports of Canadian crude reaching a record high of 4.42mn b/d in the week ending 3 January, according to the Energy Information Administration (EIA). The single largest conduit is Enbridge's 3mn b/d Mainline system, which reaches into Chicago to serve midcontinent refiners and hands off crude to other lines that go to the US Gulf coast for refining or export.
The White House said today that president Donald Trump will proceed with plans to impose 25pc tariffs on imports from Canada and Mexico and 10pc on imports from China on 1 February.
The White House pushed back on reports that the tariffs would be delayed and declined to say whether Trump made a decision on whether to exclude Canadian and Mexican crude from the tariffs.
Mexico sends far less crude to the US. Mexican crude imports to the US averaged 450,000 b/d in November 2024, according to the most recent EIA monthly data.
Mexican imports of crude into the US would likely be displaced if the tariffs are enacted, Mandell said.
Mexican crude will move to Europe and maybe Asia and other crudes will come in, he said. Heavy crude prices would rise a bit on the inefficiency of logistics but those differentials should dissipate as OPEC puts more oil onto the market as the year goes on, Mandell said.
US refiner Valero said yesterday that the tariffs could cause a 10pc cut in refinery runs depending on how long the tariffs go and how fast they are implemented.
