On Monday Eastern Time, US President elect Trump threatened to impose a 25% tariff on all products imported from Mexico and Canada. This threat not only caused a sharp drop in the stock prices of American car companies, but also worried the American oil industry.
Multiple organizations in the US oil industry have warned that Trump's tariff plan will raise US gasoline prices and refining costs, thereby increasing US gasoline prices and burdening consumers.
In addition, some analysts believe that the US refining industry is highly dependent on crude oil imports, and the possibility of Trump imposing tariffs on imported crude oil is unlikely.
US refineries highly rely on crude oil imports
Patrick De Haan, the head of petroleum analysis at GasBuddy, said that if Trump really fulfills his tariff commitments, the additional costs caused by tariffs will cause gasoline prices in the Midwest region of the United States to rise by 50 cents per gallon during the peak driving season next summer.
During the campaign of US President elect Trump, he promised to cut domestic energy costs after taking office and lower gasoline prices to below $2 per gallon. However, his current tariff plan seems to be going in the opposite direction.
The situation is not optimistic, "Dehan said." This actually goes against Trump's position on relaxing regulations in the oil industry, and is very negative news for refineries
Although the United States is also a major oil producing country, a large portion of its domestic oil production is light, low sulfur crude oil, and the country's refineries mainly require heavy, sulfur-containing crude oil to produce gasoline and diesel. Therefore, despite the record high oil production in the United States, the country still needs to import crude oil.
Data shows that out of the 10 barrels of oil imported by the United States, 7 barrels come from Canada and Mexico, with the majority flowing to fuel manufacturers in the Midwest and some to large refining centers along the Gulf Coast.
More than one-fifth of the crude oil processed by American refineries is imported from Canada. Last year, American fuel manufacturers imported 6.5 million barrels of oil per day, equivalent to the combined production of Iraq and Kuwait.
Trump's tariff threat will reignite market concerns about inflation and could have a heavy impact on American fuel manufacturers.
The US Oil Trade Organization has issued a serious warning
Scott Lauermann, spokesperson for the American Petroleum Institute, the largest trade organization in the US oil industry, said:
Canada and Mexico are our largest energy trading partners, and maintaining the free flow of energy products across our borders is crucial for North American energy security and American consumers
Another major oil trade organization, American Fuel and Petrochemical Manufacturers, stated:
A comprehensive trade policy may push up import costs, reduce the supply of petroleum raw materials and products, or trigger retaliatory tariffs, which could affect consumers and weaken our advantage as a world leading liquid fuel manufacturer
At present, the largest buyers of crude oil from Canada and Mexico include BP, ExxonMobil, and Marathon Oil, the largest refinery in the United States. In addition, Pemex and Motiva, a subsidiary of Saudi Aramco, are also on the buyer list, both of which have refineries in Texas.
Commodity Context analyst Rory Johnston said that once the tariff plan is implemented, these tariffs will force the aforementioned refining giants to either pay higher prices to import oil from these countries or seek alternative suppliers that are farther away and more expensive. In either case, some of the increased costs may be passed on to American consumers in the form of rising retail gasoline prices.
Johnston said, "Given that the US refining industry heavily relies on Canadian crude oil, imposing any tariffs on Canadian crude oil will push up oil prices
Trump's tariff plan may not be implemented?
Bob McNally, President of Rapidan Energy Group and former advisor to the Bush administration, stated that approximately 75% of crude oil in refineries in the Midwest of the United States comes from Canada, and if Trump fulfills his threat, these refineries will be the most affected.
McNally said in an interview, "Canada and the refineries in the region are inseparable, and there are almost no other options." He believes that there is only a 25% chance that Trump will actually implement the tariffs he announced this week on the oil industry.
David Oxley, a macro commodity economist at Capital Economics, also stated that the possibility of the United States imposing tariffs on imported crude oil is unlikely. But if this situation really happens, it could lead to a decrease in oil production in Canada and Mexico, an increase in gasoline prices in the United States, and may cause the global oil market to tighten in the medium term