President Donald Trump said today he will proceed with plans to impose tariffs on imports from Canada and Mexico on 1 February and explicitly referenced their potential application to crude imports.
"I'll be putting the tariff of 25pc on Canada, and separately, 25pc on Mexico," Trump told reporters at the White House. "We will really have to do that, because we have very big deficits with those countries. Those tariffs may or may not rise with time."
Pressed to explain if his tariffs may exempt crude imports, Trump said he was not inclined to exclude them but has yet to make a decision.
"We may or may not" exclude oil, Trump said. "It depends on what the price is, if the oil is properly priced, if they treat us properly."
Trump added: "We're going to make that determination, probably tonight, on oil."
The looming face-off on tariffs has unnerved US oil producers and refiners, which are warning of severe impacts to the integrated North American energy markets if taxes are imposed on flows from Canada and Mexico to the US. Industry trade group the American Petroleum Institute has lobbied the administration to exclude crude from tariffs.
US refiner Valero said today that a 25pc tariff on Canadian imports would force it to find alternative sources of crude, potentially resulting in a 10pc cut to throughputs. Valero's refining footprint in the US Gulf coast allows it to source feedstocks from around the world, but there is a point where a limit on heavy feedstocks like those from Canada could affect production of refined products, said chief operating officer Gary Simmons.
Nearly all of Mexico's roughly 500,000 b/d of crude shipments to the US in January-November 2024 were waterborne cargoes sent to US Gulf coast refiners. Those shipments in the future could be diverted to Asia or Europe. Canadian producers have much less flexibility, as more than 4mn b/d of Canada's exports are wholly dependent on pipeline routes to and through the US.
Canadian crude that flows through the US for export from Gulf coast ports would be exempt from tariffs under current trade rules, providing another potential outlet for Alberta producers — unless Trump's potential executive action on Canada tariffs eliminates that loophole.
Trump frequently makes the case that foreign suppliers are solely responsible for paying tariffs. In reality, US importers pay the tariffs, and such costs are typically passed on to consumers. In the case of Canadian and Mexican crude, the US refiners that buy from those countries would pay a tax on the value of crude imports.
Whether the price of Canadian crude falls by a sufficient amount to offset the 25pc tariff would depend on the market power of individual US refiners and Canadian producers, as well as actions by the Alberta government, according to a recent report by the Congressional Research Service.
US refineries with access to alternative suppliers could source crude from non-Canadian producers, potentially keeping their additional costs below 25pc. Conversely, import reductions could pressure prices for Western Canadian Select (WCS) crude. In turn, Alberta could reimpose a production curtailment policy in a bid to narrow WCS discounts, the report said.
