U.S. President Donald Trump is imposing tariffs on Canada and Mexico, major oil-importing countries, prompting the domestic refining industry to anticipate windfall profits. The United States currently imports large quantities of crude oil from Canada, and if the price of crude oil rises due to tariffs, the price competitiveness of American refined oil products may decline. Additionally, there are expectations that Canada, blocked by tariff barriers, may increase exports to Asia, allowing domestic refiners to import and reduce production costs.
According to industry sources and foreign media on the 3rd, President Trump signed an executive order on the 1st (local time) imposing tariffs on Canada, Mexico, and China under the International Emergency Economic Powers Act (IEEPA). As a result, starting on the 4th, a 10% tariff will be applied to Canadian energy (oil and gas) products entering the United States, while a 25% tariff will be applied to all other products. A 25% universal tariff will be imposed on products from Mexico, and 10% on products from China.
Canada and Mexico are the main oil-importing countries for the United States. According to the U.S. Energy Information Administration, from January to November last year, Canada exported an average of 4.05 million barrels (1 barrel equals 158.9 liters) of crude oil to the United States daily, ranking first and second among U.S. oil import countries. The amount of crude oil imported from these two countries accounts for approximately 70% of total U.S. imports.
In recent years, the United States has dramatically increased shale oil production, producing about 13 million barrels of crude oil daily, but still needs imports as production does not meet consumption.
Most of the crude oil exported from Canada and Mexico to the United States is heavy crude oil. Crude oil has different properties depending on the production source and the resulting oil layers, and the American Petroleum Institute (API) classifies crude oil according to the 'API gravity' method it established.
API gravity is a value that compares the relative density of crude oil to water at 60°F (15.6°C) and is calculated using a specific formula. Generally, crude oil with an API gravity below 30 degrees is classified as heavy crude oil, while crude oil with an API gravity above 34 degrees is classified as light crude oil. West Texas Intermediate (WTI) and Brent crude are classified as light crude oil, while Dubai crude is classified as heavy crude oil.
Heavy crude oil has a higher viscosity and contains more sulfur and metals (nickel, vanadium) compared to light crude oil, making it difficult to refine with standard equipment, but it is relatively cheaper. The United States, which has the world's largest refining capacity (about 18 million barrels per day), has historically invested in advanced facilities capable of refining heavy crude oil, and most refineries are set up for heavy crude oil processing.
As the world's fourth-largest oil producer, Canada currently exports about 80% of its production, with 97% of that headed to the United States. In May of last year, Canada completed the Trans Mountain Pipeline project (TMX), which crosses the Rocky Mountains, expanding its export capacity to areas outside the U.S. from 300,000 barrels to 890,000 barrels per day.
Industry insiders speculate that Canada, faced with U.S. tariff barriers, will increase exports to Asia and Europe. Currently, the share of crude oil imports from the Middle East by South Korean refiners such as S-Oil, HD Hyundai Oilbank, GS Caltex, and SK Energy is about 60-70%, and their facilities are tailored for heavy crude oil refining, making it feasible to import Canadian crude oil.
According to OilPrice.com, a U.S. energy news outlet, the price of Western Canadian Select (WCS) crude oil was $60.38 per barrel as of the 30th of last month, which is about 25% cheaper than Dubai crude oil ($80.54).
Noo-ho Meritz Securities Research Institute noted that if the U.S. imposes tariffs on Canadian crude oil, it could harm the profitability of U.S. refiners that rely on Canadian crude and lead to decreased utilization rates. They added, 'If exports of Canadian crude oil, which has quality similar to Turkish crude oil, increase to Asia, domestic refiners may reduce import costs and improve profitability.'