Trump's Canada oil tariff speaks of US vulnerability

Reuters

06-03-2025

Summary
Canadian oil faces 10% tariff, less than for other imports
Canada supplies 50% of US crude imports
Canadian crude discount widens
LONDON, March 6 - When U.S. President Donald Trump announced tariffs on Canadian and Mexican imports this week, he gave Canadian energy a modest break, showing "Tariff Man" will engage in realpolitik when it comes to oil and gas.
The Republican president said on Monday that all imports of Canadian and Mexican goods would be subject to a 25% tariff, except Canadian energy, which will only be charged a 10% duty.
The lower tariff on Canadian oil and gas reflects the two countries' energy interdependence.
Canada, the world's fourth largest crude producer, relies on the United States as the market for 90% of its exports. It also provides half of U.S. crude imports, supplying 4 million barrels per day in 2024, around one-fifth of consumption in the world's biggest oil consumer.
Most Canadian crude is shipped via pipelines from the extensive oil sands in Canada's western province of Alberta to land-locked refiners in the U.S. Midwest. These U.S. refiners rely on Canadian oil for 70% of their supplies and are configured to process the specific grade of feedstock, so they cannot easily replace Canadian crude.
RAPID ADJUSTMENT
Canadian oil producers by contrast have adjusted quickly to the Trump changes by lowering the price of Canadian crude sold into the United States to try to keep their buyers.
The discount of Western Canada Select (WCS) heavy crude to the North American benchmark West Texas Intermediate futures (WTI) has widened over the last week by around $2.50 to $14.25 a barrel.
At the same time, the premium of the Mars sour crude, a Gulf of Mexico alternative to Canadian and Mexico grades, has more than doubled since February 25 to $2.35 a barrel.
Refiners have said gasoline prices are expected to rise in some U.S. regions, particularly in the Midwest, if the tariffs are maintained.
Canada meanwhile has the option of bypassing the United States, mainly through the 890,000 barrels per day Trans Mountain pipeline system, which was expanded last year and runs from Alberta to the British Columbia coast. From there, oil can be loaded onto tankers to be shipped overseas.
But the capacity for seaborne exports is limited and so far, the United States has been the main destination for exports from the port of Vancouver.
Exports to the southern neighbour from the port are set to double in March from February to 309,000 bpd, according to data from analytics firm Kpler, a sign that traders booked extra volumes in anticipation of the tariffs that Trump had threatened weeks earlier.
The impact on the energy market will largely depend on how long the tariffs remain in place.
If they are protracted, Canadian producers could be forced to curtail output.
But in the short run, 10% tariffs are unlikely to lead to significant disruption, as producers, refiners and consumers will likely weather any higher costs.
It is an open question, however, whether Trump can stomach the potential political fallout if sustained tariffs push up energy prices.
The opinions expressed here are those of the author, a columnist for Reuters.
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Ron Bousso; editing by Barbara Lewis
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.