Trump’s Tariffs Threaten North America’s Oil Market and Could Raise US Gas Prices
President Donald Trump’s decision to impose tariffs on imports from Canada and Mexico has sparked concerns over disruptions to North America’s tightly integrated oil market and potential increases in gasoline prices for American consumers. On Saturday, Trump signed executive orders implementing a 10% tariff on Canadian energy imports, alongside broader levies of 25% on goods from Canada and Mexico and 10% on Chinese products. The tariffs are set to take effect at 12:01 a.m. ET on Tuesday.
Impact on US Refineries and Gas Prices
The tariffs could significantly curtail crude oil shipments from Canada and Mexico, the top two suppliers of foreign oil to the US. Canada exports roughly 4 million barrels of crude daily, with almost all of it flowing to the US. Mexico sends about 500,000 barrels per day, primarily to Gulf Coast refineries operated by companies like Valero Energy Corp.
In the US Midwest, which houses 23% of the nation’s refining capacity, refineries are heavily reliant on Canadian crude. Pipelines that once carried oil from the Gulf Coast to the Midwest have been reversed, leaving refiners with limited access to alternative oil supplies. Goldman Sachs analysts warned that tariffs on Canadian oil could lead to “unpopular, if temporary, gasoline price increases in the US Midwest.”
White House officials stated that the lower 10% tariff on Canadian energy imports was designed to minimize upward pressure on gasoline and home-heating oil prices. However, the broader tariffs are expected to disrupt trade flows and increase costs for American consumers.
Canada’s Response and Industry Concerns
Canada has announced retaliatory tariffs of 25% on $107 billion worth of American-made goods. Prime Minister Justin Trudeau emphasized that no single industry or region should bear the brunt of Canada’s response, though he did not rule out measures such as restricting energy exports to the US.
US fuelmakers have warned that the tariffs could erode refining profits and destabilize oil markets. Valero executives suggested that US refineries might reduce production rates in response, while Phillips 66 cautioned that Canadian crude prices could plummet. Chet Thompson, president of the American Fuel & Petrochemical Manufacturers trade group, urged a swift resolution to avoid consumer impacts.
The American Petroleum Institute echoed these concerns, calling for exclusions that protect energy affordability and support American jobs.
Market Reactions and Canadian Oil Prices
The tariffs’ implementation will determine their full impact on the market. If Canadian producers are allowed to export oil from the Gulf Coast to non-US buyers without tariffs, the effect on Canadian oil prices could be mitigated. However, Western Canadian Select crude prices have already weakened in anticipation of the tariffs, trading at a $15.50-per-barrel discount to US benchmark West Texas Intermediate on Friday—the widest gap since July 30.
Eric Nuttall, a senior portfolio manager at Ninepoint Partners, predicted that a 10% tariff could widen the discount to $16 to $17 per barrel. However, Canadian producers may find some relief from a weaker Canadian dollar and reduced output during the oil sands maintenance season, which typically begins in April.
Trans Mountain Pipeline and Alternative Markets
Canada’s newly expanded Trans Mountain pipeline, which runs from Alberta to a marine terminal near Vancouver, offers partial protection against the tariffs. Although underused due to high tolls, the pipeline could fill up to maximize tariff-free shipments to Asia, potentially reducing supplies to California refineries that currently import about half of the pipeline’s oil.
The Canadian Association of Petroleum Producers (CAPP) expressed deep disappointment with the tariffs, warning that they undermine the mutually beneficial US-Canada energy relationship. “These tariffs are likely to increase costs and inflation for American consumers while damaging the economies of both countries,” said CAPP President Lisa Baiton.
Mexico’s Oil Industry at Risk
Mexico’s oil industry, which ships half of its crude exports to the US, could also face challenges. If US refiners like Valero, Chevron, and Phillips 66 reduce purchases of Mexican oil, state-controlled Petroleos Mexicanos (Pemex) may need to boost long-haul sales to Europe and Asia, squeezing profit margins.
Rising fuel costs in the US could indirectly affect Mexico, the top buyer of US diesel and gasoline. This might prompt Mexico to increase imports from Europe and Asia, further complicating trade dynamics.
Broader Implications
The tariffs mark a significant escalation in Trump’s trade policy, with far-reaching implications for North America’s energy markets. While the administration aims to address immigration and drug trafficking concerns, the economic consequences—including higher gasoline prices and disrupted supply chains—could weigh heavily on consumers and businesses across the continent.
As the tariffs take effect, the focus will shift to how Canada, Mexico, and the US navigate the fallout and whether negotiations can avert prolonged trade tensions.