Asia likely to gain from cheaper Canadian, Mexican oil if Trump imposes tariffs

Oil producers in Canada and Mexico will likely be required to reduce prices and divert supply to Asia if U.S. Presidentelect Donald Trump enforces 25% import tariffs on unrefined imports from the 2 nations, traders and experts stated.

2 sources acquainted with Trump's strategy informed Reuters that oil would not be exempted from potential tariff hikes on imports from Canada and Mexico, regardless of the U.S. oil industry's cautions that the policy could injure consumers, market and nationwide security.

Canada and Mexico are the leading two petroleum exporters to the United States, contributing 52% and 11% of its gross imports, respectively, information from the U.S. Energy Details Administration showed.

The United States accounts for 61% of waterborne streams from Canada, and 56% from Mexico, ship tracking information from Kpler revealed.

Canadian waterborne crude exports have actually leapt 65% to about 530,000 barrels per day (bpd) in 2024, the information revealed, after the opening of the expanded Trans-Mountain pipeline increased shipments to the U.S. and Asia.

The Canadian producers, if they deal with export restraints, if they're not able to re-route their barrels that previously were exported to U.S. to other markets, might deal with much deeper discounts and might likewise suffer some earnings losses, Daan Struyven, co-head of worldwide commodities research study at Goldman Sachs said.

Canada and Mexico export generally heavy high-sulphur crude that is processed by complicated refineries in the U.S. and most of Asia.

The effect is all on the heavy grades. What are the U.S. refiners going to do? Even Saudi Arabian Heavy crude is minimal, a Singapore-based trader said, adding that some U.S. refiners can just receive unrefined through pipelines, limiting their choices for imports.

Either the manufacturer or the refiner will need to absorb the tariffs, he said, adding that Canadian producers will have to discount their oil more to attract demand from Asian refiners and cover long-distance shipping expenses.

Refining sources in Asia and experts stated they anticipate to see more Canadian and Mexican oil heading to Asia if Trump imposes the tariffs.

We are likely to see quite some volume going to China and India, where refiners' setups have the ability to refine the crude, said LSEG analyst Anh Pham.

TMX exports to Asia have actually risen in recent months as Asian refiners led by Chinese processors test the new grades. Nevertheless, Mexican exports are down 21% to about 860,000 bpd this year.

European refiners are less most likely to catch more affordable Mexican and Canadian freights, Energy Aspects expert Christopher Haines told Reuters.

Tariffs on Mexico would potentially free up some crude for Spanish refiners that take Maya, but Asia could easily take in any volumes not sold into the U.S. Gulf, so there will be competitors, he said, including that European refiners generally do not import much Canadian crude.

Exports of Mexican crude to Europe have actually averaged around 191,000 bpd up until now this year, 81% of which was provided to Spain, according to Kpler. Canadian flows are lower at 85,000 bpd.

Still, some traders and Goldman Sachs analysts remain sceptical that Trump would in fact enforce the tariffs, which he has previously used as a working out tool, as doing so would drive inflation for U.S. customers and refiners.

(source: Reuters)