Everybody Hurts - Trump's Tariffs Would Hurt Canadian Oil Producers More Than U.S. Refiners

Tariffs have served as a cornerstone of President Trump’s economic vision. In the campaign, he said he could impose tariffs as high as 25% on all imported goods from Canada — including crude oil — and he could deliver on that promise at any time. This has raised concerns, especially for Canadian producers and U.S. refiners, who depend on the efficient and economical movement of barrels between the trading partners. In today’s RBN blog, we look at how much Canadian crude oil flows to the U.S., how those imports could be affected by tariffs, and how Canadian producers and U.S. refiners would share the financial impact.

President Trump’s initial wave of executive orders (EOs) included some directly aimed at U.S. energy and trade policy (see Brand New Day). One of his first EOs directed federal agencies to investigate trade practices, including the U.S.-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA) and was signed by Trump in 2020. The president had indicated during the campaign that he could institute a tariff of up to 25% on all imported goods from Canada and Mexico on Day 1 of his administration in response to what he has called the failure of both countries to curb the flow of people and drugs across the border. The tariffs haven’t happened yet, but White House buzz this week suggested they could go into effect as soon as Saturday, February 1.

While the tariffs could be in place soon, it’s not a done deal and things could change quickly. For instance, in his first week in office, President Trump threatened 25% tariffs on Colombia if the country didn’t accept U.S. flights carrying deported migrants. Ten hours after that threat, Colombian President Gustavo Petro agreed to accept the flights and Trump changed his mind on the tariffs. However, Trump has said for months that he has his sights set on Canada and Mexico, and it is unclear if he can reach deals with those countries that could prevent the tariffs. Our focus today is on Canada, as the impact of tariffs on Mexico would be less severe for U.S. refiners. Mexico has long planned to lower its exports to the U.S. and send more of its oil to its new refinery, Dos Bocas (see Here, I Go Again).

Oh, Canada

When it comes to U.S. energy markets, the largest impact of Trump’s tariffs would be on Canadian crude oil imports. As we discussed in Why Can’t We Be Friends?, Canada (pink layer in Figure 1 below) supplied an average 4.2 MMb/d to the U.S. in the first 10 months of 2024, or 62% of total U.S. imports, with imports from other non-OPEC countries (tan layer) and from OPEC (blue layer) in distant second and third place at 1.5 MMb/d and 1 MMb/d, respectively. Most of those Canadian imports flowed to U.S. refineries in PADD 2 (Midwest), many of which are configured specifically to process large volumes of heavy Canadian crude. Smaller amounts were piped to refineries in PADD 4 (Rockies) and PADD 5 (West Coast) and to refineries and export docks in PADD 3 (Gulf Coast).

These refineries are configured to process heavy, sour crude blends such as Western Canadian Select (WCS), the highest-volume crude imported from Canada into the U.S. A 25% tariff would impact the cost of crude oil for these refineries. But the tariff would also impact the price that Canadian producers could get for their crude.