President Trump said new tariffs will move forward on imports from Mexico and Canada, effective Tuesday (March 4). The tariffs, 25% on Mexican goods and 10% on energy products from Canada, will raise prices for a healthy share of US refinery feedstock, and we expect to affect some flows at the margin to the US crude oil market.
Speaking Monday at a press conference, Trump said there was “no room left” to make a deal and avoid the import tariffs with Mexico and Canada. The tariffs were supposed to start on February 3, but the administration postponed them by one month after last-minute negotiations with the neighboring governments.
Assuming no similar deal this time, the tariffs are set to raise costs for refiners dependent on Canadian barrels. The US and Canada crude oil markets are tightly integrated, making it difficult for most buyers to switch to alternative supplies.
The US imports ~4.4 MMb/d of crude from Canada, accounting for about 27% of US refinery demand of ~16.2 MMb/d. East Daley Analytics forecasts Canadian production and tracks flows to demand centers in the Crude Hub Model, from refiners in the Pacific Northwest and Rockies to the Midwest (see figure).
East Coast refiners import Canadian offshore production from Newfoundland, and California has been importing greater quantities of Canadian crude from the expanded Trans Mountain Pipeline. The Midwest (PADD 2) receives the most Canadian barrels at average imports of 3.5 MMb/d, or ~75% of all Canadian production.
Both nations have benefited from this integration. US refiners are eager buyers of discounted heavy Canadian barrels, and the US creates a willing market for the hard-to-refine heavy oil. Many US refiners have upgraded equipment and added coker units to crack the heavy sour oil, particularly in the Midwest and Rocky Mountains (PADDs 2 and 4). These refiners lean heavily on Canadian feedstock and have limited means to replace the volume or quality.
As for Mexico, the US in 2024 imported ~625 Mb/d of crude oil and products from Mexico, according to Energy Information Administration data, mainly heavy Maya crude shipped to Gulf Coast (PADD 3) refiners. In EDA’s view, these Mexican imports are more vulnerable to displacement due to the higher 25% tariffs, while PADD 3 refiners can more readily find substitute sources of heavy crude, including Venezuelan and Middle East qualities, to avoid the tariffs.
East Daley believes nearly all (~90%) of the Canadian crude oil flows into the US would not change from a 10% tariff. We see some risk for deliveries to California and the Northeast, and to a small share of the flows into PADD 2 that travel to Gulf Coast refiners. Refiners in California may return to reliance on Alaskan ANS barrels, while buyers on the Gulf Coast and East Coast could substitute Canadian barrels with other heavy crude grades. – Kristy Oleszek.
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