Trump’s proposed tariffs on Canada would drive up pump costs, analysts warn

By Shariq Khan and Nicole Jao

NEW YORK (Reuters) – U.S. President-elect Donald Trump’s pledge to impose tariffs on Canada would drive up gas costs for Individuals as it will upend decades-old oil commerce from its high crude provider, analysts stated on Wednesday.

Trump, who takes workplace on Jan. 20, stated this week he would impose a 25% tariff on all imports from Canada and Mexico till they clamp down on medication and migrants crossing the border. Canadian oil imports wouldn’t be exempt below a free-trade deal from the levies, Reuters reported.

At the same time as surging oil output to file highs has made the U.S. the world’s largest producer lately, greater than a fifth of the oil processed by U.S. refiners is imported from Canada.

Within the landlocked U.S. Midwest, the place refineries course of 70% of the greater than 4 million barrels per day (bpd) of Canadian crude imports, shoppers may see pump costs bounce by 30 cents per gallon or extra, or about 10%, based mostly on present costs, GasBuddy analyst Patrick De Haan stated.

If applied, the tariffs would pressure these refiners, together with Marathon Petroleum (NYSE:MPC), BP (NYSE:BP), and Phillips 66 (NYSE:PSX), to both pay a better worth to import oil from these international locations or to seek out different suppliers that will be additional away and thus additionally costlier.

In both state of affairs, a portion of the added prices is prone to be handed on to U.S. shoppers within the type of greater costs for gasoline at retail pumps, Commodity Context analyst Rory Johnston stated.

“Any tariffs on Canadian oil are going to extend pump costs given the dependence of a lot of the U.S. refining business on Canadian crude,” Johnston stated. The price of crude feedstock is the largest part of retail gasoline costs.

BP, Marathon, and Phillips 66 didn’t instantly reply to requests for remark.

America’s high oil commerce teams, the American Gasoline and Petrochemical Producers group and the American Petroleum Institute, in the meantime, stated imposing the tariffs could be a mistake – exposing a uncommon second of discord between the business and Trump.

“Throughout-the-board commerce insurance policies that might inflate the price of imports, scale back accessible provides of oil feedstocks and merchandise, or provoke retaliatory tariffs have potential to affect shoppers and undercut our benefit because the world’s main maker of liquid fuels,” AFPM stated on Tuesday.

Cheaper gasoline was amongst Trump’s high priorities throughout his re-election marketing campaign as he sought to attach with shoppers pissed off by sky-high gas costs within the aftermath of the coronavirus pandemic, Russia’s invasion of Ukraine, the battle in Gaza and different provide disruptions.

Gasoline costs jumped to over $5 per gallon in 2022, however have fallen sharply since, hitting $3.04 as of Monday, the bottom since 2020, the U.S. Vitality Data Administration stated.

MIDWEST TO BE HIT HARDEST

Lots of the nation’s refineries are configured to course of heavy Canadian crude grades, and never the sunshine grade pumped within the booming U.S. shale oilfields.

U.S. Midwest refineries, specifically, are geared to run the heavier crude shipped throughout the border by pipeline or rail.

BP’s Whiting refinery in Indiana, the most important gas provider within the Midwest, imported greater than 250,000 bpd of Canadian heavy oil in 2023, or about 57% of its 440,000 bpd refining capability, in keeping with RBN Vitality.

Different U.S. states can even really feel the pinch, albeit to a smaller extent, GasBuddy’s De Haan stated.

Main client markets on the U.S. East Coast can faucet seaborne cargoes from Europe or Africa if tariffs threaten their purchases of gasoline from the Irving Oil refinery in Saint John, New Brunswick (NYSE:BC), he stated.

Irving Oil didn’t instantly reply to a request for remark.

West Coast refiners are higher geared to course of U.S. crude, he added.

“States that border Illinois are the areas that will be most impacted as a result of they’ve the fewest options,” De Haan stated.

Gulf Coast refiners have some capability to import extra oil from members of the Group of the Petroleum Exporting International locations akin to Iraq, Saudi Arabia, Kuwait and Venezuela, Commodity Context’s Johnston stated.

Throughout the board, many refiners are already dealing with considerably decrease margins for producing gas, hitting their income in current quarters.

“These potential tariffs are a kick within the tooth for refineries,” De Haan warned.