Asia more likely to profit from cheaper Canadian, Mexican oil if Trump imposes tariffs

By Florence Tan, Siyi Liu and Robert Harvey

SINGAPORE/LONDON (Reuters) -Oil producers in Canada and Mexico will probably be compelled to cut back costs and divert provide to Asia if U.S. President-elect Donald Trump imposes 25% import tariffs on crude imports from the 2 nations, merchants and analysts stated.

Two sources conversant in Trump’s plan advised Reuters that oil wouldn’t be exempted from potential tariff hikes on imports from Canada and Mexico, regardless of the U.S. oil business’s warnings that the coverage may harm shoppers, business and nationwide safety.

Canada and Mexico are the highest two petroleum exporters to america, contributing 52% and 11% of its gross imports, respectively, information from the U.S. Vitality Data Administration confirmed.

The US accounts for 61% of waterborne flows from Canada, and 56% from Mexico, ship monitoring information from Kpler confirmed.

Canadian waterborne crude exports have jumped 65% to about 530,000 barrels per day (bpd) in 2024, the information confirmed, after the opening of the expanded Trans-Mountain pipeline elevated shipments to the U.S. and Asia.

“The Canadian producers, in the event that they face export constraints, if they are not in a position to re-route their barrels that beforehand have been exported to U.S. to different markets, might face deeper reductions and can also undergo some income losses,” Daan Struyven, co-head of worldwide commodities analysis at Goldman Sachs stated.

Canada and Mexico export primarily heavy high-sulphur crude that’s processed by complicated refineries within the U.S. and most of Asia.

“The impression is all on the heavy grades. What are the U.S. refiners going to do? Even Saudi Arabian Heavy crude is proscribed,” a Singapore-based dealer stated, including that some U.S. refiners can solely obtain crude by way of pipelines, limiting their choices for imports.

“Both the producer or the refiner must take up the tariffs,” he stated, including that Canadian producers must low cost their oil extra to draw demand from Asian refiners and canopy long-distance transport prices.

Refining sources in Asia and analysts stated they count on to see extra Canadian and Mexican oil heading to Asia if Trump imposes the tariffs.

“We’re more likely to see fairly some quantity going to China and India, the place refiners’ configurations are in a position to refine the crude,” stated LSEG analyst Anh Pham.

TMX exports to Asia have risen in current months as Asian refiners led by Chinese language processors check the brand new grades. Nevertheless, Mexican exports are down 21% to about 860,000 bpd this 12 months.

European refiners are much less more likely to pounce on cheaper Mexican and Canadian cargoes, Vitality Elements analyst Christopher Haines advised Reuters.

Tariffs on Mexico “would doubtlessly unencumber some crude for Spanish refiners that take Maya, however Asia may simply take up any volumes not bought into the U.S. Gulf, so there shall be competitors,” he stated, including that European refiners sometimes do not import a lot Canadian crude.

Exports of Mexican crude to Europe have averaged round 191,000 bpd to this point this 12 months, 81% of which was delivered to Spain, in line with Kpler. Canadian flows are decrease at 85,000 bpd.

Nonetheless, some merchants and Goldman Sachs analysts stay sceptical that Trump would really impose the tariffs, which he has beforehand used as a negotiating device, as doing so would drive inflation for U.S. shoppers and refiners.