Canadian and Mexican oil producers could must decrease costs and redirect shipments to Asia if US President-elect Donald Trump enforces a 25% import tariff on crude from these international locations, in response to merchants and analysts.
Two sources with data of Trump’s plan revealed to Reuters that crude oil is unlikely to be exempt from potential tariff hikes on Canadian and Mexican imports, regardless of warnings from the US oil business concerning the detrimental influence on customers, the business, and nationwide safety.
Canada and Mexico are the highest two petroleum exporters to the United States, contributing 52% and 11% of its gross imports, respectively, knowledge from the US Energy Information Administration confirmed.
The United States accounts for 61% of waterborne flows from Canada, and 56% from Mexico, ship monitoring knowledge from Kpler confirmed.
Canadian waterborne crude exports have jumped 65% to about 530,000 barrels per day (bpd) in 2024, the info confirmed, after the opening of the expanded Trans-Mountain pipeline elevated shipments to the US and Asia.
“The Canadian producers, in the event that they face export constraints, if they don’t seem to be in a position to re-route their barrels that beforehand have been exported to US to different markets, could face deeper reductions and can also endure some income losses,” Daan Struyven, co-head of worldwide commodities analysis at Goldman Sachs stated.
Canada and Mexico export primarily heavy high-sulphur crude that’s processed by complicated refineries within the US and most of Asia.
“The influence is all on the heavy grades. What are the US refiners going to do? Even Saudi Arabian Heavy crude is proscribed,” a Singapore-based dealer stated, including that some US refiners can solely obtain crude through pipelines, limiting their choices for imports.
“Either the producer or the refiner must take up the tariffs,” he stated, including that Canadian producers must low cost their oil extra to draw demand from Asian refiners and canopy long-distance transport prices.
Refining sources in Asia and analysts stated they anticipate to see extra Canadian and Mexican oil heading to Asia if Trump imposes the tariffs.
“We are prone to see fairly some quantity going to China and India, the place refiners’ configurations are in a position to refine the crude,” stated LSEG analyst Anh Pham.
TMX exports to Asia have risen in current months as Asian refiners led by Chinese processors check the brand new grades. However, Mexican exports are down 21% to about 860,000 bpd this 12 months.
European refiners are much less prone to pounce on cheaper Mexican and Canadian cargoes, Energy Aspects analyst Christopher Haines informed Reuters.
Tariffs on Mexico “would probably unlock some crude for Spanish refiners that take Maya, however Asia may simply take up any volumes not offered into the US Gulf, so there will likely be competitors,” he stated, including that European refiners sometimes do not import a lot Canadian crude.
Exports of Mexican crude to Europe have averaged round 191,000 bpd thus far this 12 months, 81% of which was delivered to Spain, in response to Kpler. Canadian flows are decrease at 85,000 bpd.
Still, some merchants and Goldman Sachs analysts stay sceptical that Trump would truly impose the tariffs, which he has beforehand used as a negotiating device, as doing so would drive inflation for US customers and refiners.
