U.S. President-elect Donald Trump’s promise to impose tariffs on Canada would drive up fuel prices for Americans as it upends a decades-old oil trade with its main crude supplier, analysts said Wednesday.
Mr. Trump, who takes office on January 20, said this week he would impose 25% tariffs on all imports from Canada and Mexico until they crack down on drugs and migrants crossing the border. Imports of Canadian oil would not be exempt from these taxes under a free trade agreement, according to Reuters.
Although rising oil production to record levels has made the United States the world’s top producer in recent years, more than a fifth of the oil processed by U.S. refiners is imported from Canada.
In the landlocked U.S. Midwest, where refineries process 70% of the more than 4 million barrels per day (bpd) imported from Canada, consumers could see pump prices rise by 30 cents per gallon or more, or about 10%. , based on current prices, said GasBuddy analyst Patrick De Haan.
If implemented, the tariffs will force refiners, including Marathon Petroleum, BP and Phillips 66, to pay a higher price to import oil from these countries or find other suppliers who will be further away and therefore more dear.
In either case, some of the additional costs will likely be passed on to U.S. consumers in the form of higher gasoline prices at the pump, said Rory Johnston, an analyst at Commodity Context.
“Any tariffs on Canadian oil will result in higher prices at the pump, given that much of the U.S. refining industry depends on Canadian crude,” Mr. Johnston said. The cost of the raw material is the largest component of the retail gasoline price.
BP, Marathon and Phillips 66 did not immediately respond to requests for comment.
Major U.S. oil trade groups, the American Fuel and Petrochemical Manufacturers group and the American Petroleum Institute, meanwhile, said imposing tariffs would be a mistake, revealing a rare moment of discord between the industry and Mr. Trump.
“Broad trade policies that may inflate the cost of imports, reduce the supply of raw materials and petroleum products, or provoke tariff retaliation may impact consumers and reduce our advantage as the world’s largest fuel producer liquids,” the AFPM said on Tuesday.
Cheaper gasoline was one of Mr. Trump’s top priorities during his re-election campaign, as he sought to connect with consumers frustrated by high fuel prices in the wake of the coronavirus pandemic, from Russia’s invasion of Ukraine, the war in Gaza and other supply disruptions.
Gasoline prices topped $5 a gallon in 2022 but have fallen sharply since then, hitting $3.04 on Monday, the lowest level since 2020, according to the U.S. Energy Information Administration (US Energy Information Administration).
THE MIDWEST WILL BE HARDEST HIT
Many of the country’s refineries are set up to process Canadian heavy crude, not the light crude pumped from the United States’ booming shale oil fields.
Refineries in the U.S. Midwest, in particular, are designed to process heavier crude shipped by pipeline or rail across the border.
BP’s Whiting refinery in Indiana, the Midwest’s largest fuel supplier, imported more than 250,000 bpd of Canadian heavy oil in 2023, or about 57% of its 440,000 bpd refining capacity, according to RBN Energy .
Other US states will also be affected, but to a lesser extent, according to Mr. De Haan of GasBuddy.
Major consumer markets on the U.S. East Coast may use ocean cargoes from Europe or Africa if tariffs threaten their gasoline purchases from the Irving Oil refinery in Saint John, N.L. Brunswick, he said.
Irving Oil did not immediately respond to a request for comment.
West Coast refiners are better equipped to process U.S. crude, he added.
“The states bordering Illinois are the hardest hit areas because they have the fewest alternatives,” De Haan said.
Gulf Coast refiners have some capacity to import more oil from members of the Organization of the Petroleum Exporting Countries, such as Iraq, Saudi Arabia, Kuwait and Venezuela, Mr. Johnston said by Commodity Context.
Generally speaking, many refiners are already facing significantly lower margins for fuel production, which has had the effect of reducing their profits in recent quarters.
“These potential customs duties are a kick in the anthill for refineries,” warned Mr. De Haan.
