US refiners may be forced to find alternative crude oil sources and could face challenges in maintaining optimal refinery operations due to potential tariffs on Canadian and Mexican crude oil, which would significantly limit their options.
The proposed tariffs on Mexican and Canadian energy imports have been delayed until early March, but market uncertainty persists due to President Donald Trump’s plan, according to Vortexa’s senior oil market analyst, Rohit Rathod.
“US Midwest refiners, who rely mainly on Canadian crude via pipeline, might see a reduction in run rates and challenging economics if tariffs are imposed,” Rathod said in an analysis.
The recently announced 25% steel and aluminum tariffs, which will begin on March 12, have escalated existing uncertainty.
Additionally, tariffs on Mexican crude imports could cut off several US Gulf Coast refiners from heavy grades that are not easily replaced, Rathod said.
What’s at stake?
The import of crude oil from Canada to the US averaged around 4 million barrels per day from January to November 2024, based on EIA data, and this could be significantly affected, according to Vortexa.
The majority of this, 3.7 million barrels a day, is transported over land via pipelines and rail, with the remainder shipped by sea, Rathod said.
Vortexa data for October-December 2024 showed that approximately 170,000 barrels per day of Canadian crude oil were transported from Vancouver to the US West Coast via water.
These barrels, which could be redirected to Northeast Asia if tariffs were imposed, were transported via the TMX pipeline.
Approximately 200,000 barrels per day of crude flows from East Coast Canada could also be affected.
Additionally, 250,000 barrels per day of clean product imports into US PADD 1/Atlantic Coast from EC Canada would need to be redirected as well, according to the analysis.
US Gulf Coast refiners could be scrambling to replace 450,000 barrels per day of seaborne crude oil from Mexico, which is the next biggest flow into the country. If tariffs are put in, Gulf Coast refiners could face challenges to replace this amount.
“The US also imports some ~100kbd of residual fuel from Mexico and another 50kbd from EC Canada which will potentially be impacted,” Rathod said.
Finally there are small volumes of around ~40kbd of clean products that are imported from China which could be impacted.
China tariffs in effect
China responded to US tariffs on Chinese imports, which were implemented on February 4, with counter-tariffs on US energy imports, including crude oil, LNG, and thermal/coking coal.
The Chinese tariffs took effect on February 10th.
“The retaliatory tariffs on US energy imports include 10% and 15% import tariffs on US crude and LNG respectively; however we maintain that the impacts will be minimal given flows constitute 5% or less of China’s total imports and the US originated cargoes can be easily redirected to other destinations in Asia,” Rathod added.
The primary energy trade between China and the US, LPG, and ethane imports, were not subjected to Chinese tariffs.
Four shipments of US crude are scheduled to arrive in China between mid-February and the end of March, as of February 12, Vortexa reported.
“We understand that buyers will likely look to swap these cargoes with buyers in neighboring countries since tariff exemptions seem unlikely. In the meantime, the barrels could be stored in bonded tanks for future delivery,” Rathod noted.
It is important to note that US ethane and LPG exports to China have not been subject to tariffs, despite the recent bilateral tariffs imposed on other products.
Chinese steam crackers and PDH plants are already operating at weak margins. If China imposes tariffs on these US imports, it would negatively impact them further.
“That said, we certainly have quite some uncertain weeks ahead of us and it is difficult to comment on anything with utmost certainty,” Rathod said.
Trump is expected to announce this week that he is considering reciprocal tariffs on imports from the European Union.
Any tariffs on the European Union could initiate retaliatory tariffs, with EU leaders holding their own talks to decide the extent of retaliation. All these developments are only fuelling the uncertainty around US energy flows.
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