By Shariq Khan and Nicole Jao
NEW YORK (Reuters) – Newly-elected U.S. President Donald Trump’s pledge to impose tariffs on Canada would drive up fuel prices for Americans as it upends the decades-old oil business of its top crude supplier, they said analysts Wednesday.
Trump, who takes office on January 20, said this week he would impose a 25% tariff on all imports from Canada and Mexico until they control drugs and migrants crossing the border. Canadian oil imports would not be exempt from the duties under a free trade agreement, Reuters reported.
Even as rising oil production to record highs has made the U.S. the world’s largest producer in recent years, more than a fifth of the oil processed by U.S. refineries is imported from Canada.
In the landlocked US Midwest, where refineries process 70% of the more than 4 million barrels per day (bpd) of Canadian crude imports, consumers could see pump prices rise by 30 cents per gallon or more, or about 10%, based on the current situation. prices, says GasBuddy analyst Patrick De Haan.
If implemented, the tariffs would force these refiners, including Marathon Petroleum (NYSE:), BP (NYSE:) and Phillips 66 (NYSE:), to either pay a higher price to import oil from these countries or find alternative suppliers. Finding it would be further away and therefore more expensive.
Under either scenario, some of the additional costs will likely be passed on to U.S. consumers in the form of higher gasoline prices at retail pumps, said Commodity Context analyst Rory Johnston.
“Any tariff on Canadian oil will increase pump prices, given the dependence of much of the U.S. refining industry on Canadian crude,” Johnston said. The cost of raw materials makes up the largest component of retail gasoline prices.
BP, Marathon and Phillips 66 did not immediately respond to requests for comment.
The main U.S. oil trade groups, the American Fuel and Petrochemical Manufacturers Group and the American Petroleum Institute, meanwhile said imposing the tariffs would be a mistake, exposing a rare moment of disagreement between the industry and Trump.
“Across-the-board trade policies that could raise the cost of imports, reduce accessible supplies of oil commodities and products, or trigger retaliatory tariffs have the potential to impact consumers and undermine our lead as the world’s largest producer of liquid fuels,” said AFPM. on Tuesday.
Cheaper gasoline was among Trump’s top priorities during his re-election campaign as he sought to connect with consumers frustrated by skyrocketing fuel prices in the wake of the coronavirus pandemic, Russia’s invasion of Ukraine, the war in Gaza and other supply disruptions .
Gasoline prices rose to more than $5 a gallon in 2022 but have since fallen sharply, reaching $3.04 on Monday, the lowest since 2020, the U.S. Energy Information Administration said.
MIDWEST IS HIT HARDEST
Many of the country’s refineries are configured to process heavy Canadian crude, not the light grade pumped into booming U.S. shale oil fields.
U.S. refineries in the Midwest in particular are geared to transport the heavier crude oil shipped across the border by pipeline or rail.
BP’s Whiting refinery in Indiana, the largest fuel supplier in the Midwest, imported more than 250,000 barrels per day of Canadian heavy oil in 2023, or about 57% of its 440,000 barrels per day refining capacity, RBN Energy said.
Other American states will also feel the pressure, albeit to a lesser extent, according to GasBuddy’s De Haan.
Major consumer markets on the U.S. East Coast could tap ocean freight from Europe or Africa if tariffs threaten their purchases of gasoline from the Irving Oil refinery in Saint John, New Brunswick (NYSE:), he said.
Irving Oil did not immediately respond to a request for comment.
West Coast refineries are better attuned to processing, he added.
“States bordering Illinois are the areas that would be most affected because they have the fewest alternatives,” De Haan said.
Gulf Coast refineries have some capacity to import more oil from Organization of the Petroleum Exporting Countries members such as Iraq, Saudi Arabia, Kuwait and Venezuela, Commodity Context’s Johnston said.
Across the board, many refiners are already facing significantly lower margins for fuel production, hurting their profits in recent quarters.
“These potential tariffs are a kick in the teeth for refineries,” De Haan warned.
