Canadian and Mexican oil producers may need to lower prices and redirect shipments to Asia if US President-elect Donald Trump enforces a 25% import tariff on crude from these countries, according to traders and analysts.
Two sources with knowledge of Trump’s plan revealed to Reuters that crude oil is unlikely to be exempt from potential tariff hikes on Canadian and Mexican imports, despite warnings from the US oil industry about the negative impact on consumers, the industry, and national security.
Canada and Mexico are the top two petroleum exporters to the United States, contributing 52% and 11% of its gross imports, respectively, data from the US Energy Information Administration showed.
The United States accounts for 61% of waterborne flows from Canada, and 56% from Mexico, ship tracking data from Kpler showed.
Canadian waterborne crude exports have jumped 65% to about 530,000 barrels per day (bpd) in 2024, the data showed, after the opening of the expanded Trans-Mountain pipeline increased shipments to the US and Asia.
“The Canadian producers, if they face export constraints, if they’re not able to re-route their barrels that previously were exported to US to other markets, may face deeper discounts and may also suffer some revenue losses,” Daan Struyven, co-head of global commodities research at Goldman Sachs said.
Canada and Mexico export mainly heavy high-sulphur crude that is processed by complex refineries in the US and most of Asia.
“The impact is all on the heavy grades. What are the US refiners going to do? Even Saudi Arabian Heavy crude is limited,” a Singapore-based trader said, adding that some US refiners can only receive crude via pipelines, limiting their options for imports.
“Either the producer or the refiner will have to absorb the tariffs,” he said, adding that Canadian producers will have to discount their oil more to attract demand from Asian refiners and cover long-distance shipping costs.
Refining sources in Asia and analysts said they expect to see more Canadian and Mexican oil heading to Asia if Trump imposes the tariffs.
“We are likely to see quite some volume going to China and India, where refiners’ configurations are able to refine the crude,” said LSEG analyst Anh Pham.
TMX exports to Asia have risen in recent months as Asian refiners led by Chinese processors test the new grades. However, Mexican exports are down 21% to about 860,000 bpd this year.
European refiners are less likely to pounce on cheaper Mexican and Canadian cargoes, Energy Aspects analyst Christopher Haines told Reuters.
Tariffs on Mexico “would potentially free up some crude for Spanish refiners that take Maya, but Asia could easily absorb any volumes not sold into the US Gulf, so there will be competition,” he said, adding that European refiners typically don’t import much Canadian crude.
Exports of Mexican crude to Europe have averaged around 191,000 bpd so far this year, 81% of which was delivered to Spain, according to Kpler. Canadian flows are lower at 85,000 bpd.
Still, some traders and Goldman Sachs analysts remain sceptical that Trump would actually impose the tariffs, which he has previously used as a negotiating tool, as doing so would drive inflation for US consumers and refiners.
