US to impose 10% tariff on Canadian energy imports, 25% on Mexican imports

The US will impose a 10% tariff on energy imports from Canada and a 25% tariff on energy imports from Mexico, both major suppliers of crude to US refiners, the White House said Feb. 1.

The new tariffs take effect Feb. 4, according to an executive order signed by US President Donald Trump. Other non-energy imports from Canada will face a 25% tariff.

Trump said the emergency tariffs on Canada are in response to the flow of illegal aliens and drugs into the US.

The US will also impose 25% tariffs on imports from Mexico and an additional 10% tariff on goods from China, also set to take effect Feb. 4, according to White House executive orders.

The lower 10% tariff on energy imports from Canada was likely due to US refiners' reliance on Canadian crude, specifically in the Midwest.

A 10% tariff would boost the spot price of Western Canadian Select at Hardisty, Alberta, to $63.72/b based on the $57.93/b Platts assessment on Jan. 31, while a 25% tariff would put the price at $72.41/b.

The increase would likely eat into refining margins. The WCS coking margin in the Midwest was at $9.24/b Jan. 31, according to data from Platts, a unit of S&P Global Commodity Insights.

However, if the tariffs boost refined products prices in the Midwest that could help compensate for the rise in crude supply costs, easing the impact on refining margins.

Any tariffs will impact the US refining sector directly and are likely to cause ripples through global oil markets as crude flows change, and could spark retaliatory actions by Canada and Mexico, particularly impacting exports of US gasoline and other refined products to Mexico.

Given that crude oil costs just over half of a gallon of gasoline, pump prices will likely reflect the higher crude cost.

"American refiners depend on crude oil from Canada and Mexico to produce the affordable, reliable fuels consumers count on every day. Some regions in our country also rely on Canadian refined products, like gasoline, diesel and heating oil," American Fuel & Petrochemical Manufacturers President and CEO Chet Thompson said in a press release. "We are hopeful a resolution can be quickly reached with our North American neighbors so that crude oil, refined products and petrochemicals are removed from the tariff schedule before consumers feel the impact."

Speaking at a press conference late Feb. 1, Canada Prime Minister Justin Trudeau announced retaliatory 25% tariffs on $155 billion of US goods, with an immediate plan to tariff $30 billion of those goods beginning on Feb. 4. The remaining $125 billion will be tariffed in 21 days to allow Canadian companies and supply chains to source alternatives.

Trudeau also said the Canadian government was weighing further non-tariff responses to Trump's decision.

"As part of our response, we are considering, with the provinces and territories, several non-tariff measures -- including some relating to critical minerals, energy procurement and other partnerships," Trudeau said, who urged all Canadians to set aside political differences in the face of potential economic difficulty. "We will stand strong for Canada."

US Midwest refiners are dependent on Canadian heavy crude. US imports of Canadian crude averaged 4 million b/d in October, with 2.7 million b/d of that going to Midwest refiners, according to the most recent monthly data from the US Energy Information Administration. The US West Coast imported 423,000 b/d in October, the US Gulf Coast imported 497,000 b/d, the Rockies imported 248,000 b/d, and the US Atlantic Coast imported 105,000 b/d.

Canadian oil producers are expected to shoulder most of the tariff because they have limited ability to export elsewhere and will be competing at the margin with medium-heavy barrels on the Gulf Coast.

Western Canadian Select at Hardisty, Alberta, was assessed at a $13.85/b discount to WTI Jan. 31, down 10 cents on the day and remaining in a well-worn range as traders waited for more details on the tariffs.

"Alberta will continue diplomatic efforts in the United States to persuade the U.S. President, lawmakers, administration officials and the American people to lift all tariffs on Canadian goods as soon as possible and to repair our relationship with the United States," Alberta Premier Danielle Smith said in a statement.

"Alberta will, however, continue to strenuously oppose any effort to ban exports to the U.S. or to tax our own people and businesses on goods leaving Canada for the United States. Such tactics would hurt Canadians far more than Americans," she said.

Limited options

Coastal markets would have an easier time replacing Canadian crude via waterborne imports. However, Midwest refiners would have a difficult time importing heavy crudes because of a lack of pipeline capacity from the USGC.

Enbridge's 212,000 b/d North Dakota pipeline carries light sweet crude from the Bakken to Clearbrook, Minnesota, according to the EIA. Energy Transfer Partners' Dakota Access pipeline, with a capacity of 750,000 b/d, can carry the same Bakken crude to Patoka, Illinois. Energy Transfer Partners also operates the 280,000 b/d Mid-Valley Pipeline from Longview, Texas to Samaria, Michigan.

Several pipelines originating in Wyoming and Colorado — the Basin Pipeline, the Platte Pipeline, the Pony Express Pipeline and the DJ Basin — also carry crude to the large storage facility in Cushing, Oklahoma, which could route crude to the Midwest.

However, those lines would move US-produced light sweet crude, which is not optimal for Midwest refineries tooled with coking units designed to process Canadian heavies.

Mexican exports decline

Mexico is also a regular supplier of crude to US refiners, primarily in the USGC. The USGC imported 453,000 b/d of crude from Mexico in November, according to the EIA. However, in contrast to Canada, exports to the US have been declining because of lower Mexican output and because Mexico has been shipping more barrels to Europe.

USGC refiners could turn to other waterborne imports to replace Mexican crude. Imports from Venezuela have increased following limited sanctions waivers given to Chevron to operate in the county.

Average crude production by Venezuela's state-owned oil company PDVSA and its foreign partners was 905,000 b/d in December 2024, up from 795,000 b/d in December 2023, according to estimated PDVSA production data reviewed by Commodity Insights.

According to press reports, Trump said Feb. 1 that Venezuela agreed to receive illegal immigrants from Venezuela captured in the US.

Trump's envoy for special missions, Richard Grenell, met with disputed Venezuelan President Nicolás Maduro on Jan. 31 to discuss repatriation flights from the US and the release of US detainees, although it was unclear whether US oil licenses and sanctions were on the table during the talks.

Boosting Venezuela's crude production would likely take additional easing of sanctions, and billions of dollars of investments in the country's upstream and midstream.

USGC refiners could also turn to US offshore crudes, such as Mars. Mars crude differentials gained in the week ended Jan. 31 as traders prepared for tariffs on imports from Canada and Mexico.