Canada and Mexico Oil Producers May Shift Supply to Asia Amid Potential US Tariffs
Oil producers in Canada and Mexico could face pressure to cut prices and redirect their supply to Asia if US President-elect Donald Trump enforces a 25% tariff on crude imports from these countries, according to traders and analysts.
Sources familiar with Trump’s plans told Reuters that oil may not be excluded from potential tariff increases on imports from Canada and Mexico, despite warnings from the US oil industry that such policies could harm consumers, businesses, and national security. The United States imports 61% of Canada’s crude and 56% of Mexico’s, as shown by ship tracking data from Kpler.
This year, Canadian crude exports have surged by 65%, reaching around 530,000 barrels per day (bpd), following the expansion of the Trans-Mountain pipeline, which has boosted shipments to the US and Asia.
Daan Struyven, Co-head of Global Commodities Research at Goldman Sachs, commented that if Canadian producers encounter export limitations or struggle to reroute barrels previously sent to the US, they may have to offer deeper discounts and face potential revenue losses.
Both Canada and Mexico primarily export heavy, high-sulfur crude, which is processed by specialized refineries in the US and much of Asia.
“The impact will mainly affect heavy crude grades. US refiners face limited options for imports, with some able to receive crude only via pipelines,” noted a Singapore-based trader. This situation could force either the producer or the refiner to absorb the tariff costs. As a result, Canadian producers may need to lower their oil prices further to attract demand from Asian refineries, factoring in the long shipping distances.
Analysts and refining sources in Asia predict an uptick in Canadian and Mexican oil shipments to Asia if Trump enacts the tariffs, with China and India expected to import more as their refineries are equipped to process these crude grades. Canadian exports to Asia have been rising, with Chinese refineries testing new grades. However, Mexican exports have dropped by 21% to around 860,000 bpd this year.
Despite this, some traders and Goldman Sachs analysts remain doubtful that Trump will impose the tariffs, suggesting that his use of tariffs as a negotiating tactic could ultimately lead to inflation for US consumers and refiners.
