Cheaper Canadian, Mexican oil could profit Asia below Trump tariffs
Canadian and Mexican oil producers could have to decrease costs and redirect shipments to Asia if US President-elect Donald Trump enforces a 25% import tariff on crude from these international locations, in response to merchants and analysts.
Two sources with information of Trump’s plan revealed to Reuters that crude oil is unlikely to be exempt from potential tariff hikes on Canadian and Mexican imports, regardless of warnings from the US oil trade concerning the adverse affect on shoppers, the trade, and nationwide safety.
Canada and Mexico are the highest two petroleum exporters to america, contributing 52% and 11% of its gross imports, respectively, knowledge from the US Power Info Administration confirmed.
America accounts for 61% of waterborne flows from Canada, and 56% from Mexico, ship monitoring knowledge from Kpler confirmed.
Canadian waterborne crude exports have jumped 65% to about 530,000 barrels per day (bpd) in 2024, the info confirmed, after the opening of the expanded Trans-Mountain pipeline elevated shipments to the US and Asia.
“The Canadian producers, in the event that they face export constraints, if they don’t seem to be capable of re-route their barrels that beforehand had been exported to US to different markets, could face deeper reductions and may undergo some income losses,” Daan Struyven, co-head of worldwide commodities analysis at Goldman Sachs mentioned.
Canada and Mexico export primarily heavy high-sulphur crude that’s processed by advanced refineries within the US and most of Asia.
“The affect is all on the heavy grades. What are the US refiners going to do? Even Saudi Arabian Heavy crude is proscribed,” a Singapore-based dealer mentioned, including that some US refiners can solely obtain crude by way of pipelines, limiting their choices for imports.
“Both the producer or the refiner must take in the tariffs,” he mentioned, 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 mentioned they anticipate 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 capable of refine the crude,” mentioned LSEG analyst Anh Pham.
TMX exports to Asia have risen in latest 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, Power Elements analyst Christopher Haines instructed Reuters.
Tariffs on Mexico “would doubtlessly unencumber some crude for Spanish refiners that take Maya, however Asia might simply take in any volumes not offered into the US Gulf, so there can be competitors,” he mentioned, including that European refiners sometimes do not import a lot Canadian crude.
Exports of Mexican crude to Europe have averaged round 191,000 bpd up to now this 12 months, 81% of which was delivered to Spain, in response to Kpler. Canadian flows are decrease at 85,000 bpd.
Nonetheless, some merchants and Goldman Sachs analysts stay sceptical that Trump would truly impose the tariffs, which he has beforehand used as a negotiating instrument, as doing so would drive inflation for US shoppers and refiners.