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(Bloomberg) -- US President Donald Trump’s tariffs on imports from Canada and Mexico threaten to disrupt North America’s tightly integrated oil market and push up gasoline prices for American motorists.
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Trump on Saturday signed orders implementing a levy of 10% on imports of Canadian energy, along with general levies of 25% on Canada and Mexico and 10% on China, according to White House officials who briefed reporters on condition of anonymity. The tariffs take effect at 12:01 a.m. on Tuesday.
Tariffs on Canada and Mexico may curtail shipments from the top two suppliers of foreign crude to the US. Almost all of Canada’s roughly 4 million barrels of daily crude exports flow to its southern neighbor, and about 500,000 barrels comes into the US from Mexico, the bulk of it purchased by Valero Energy Corp. for its plants on the Gulf Coast.
In the US Midwest, which is home to 23% of US refining capacity, refiners are so reliant on Canadian supplies that pipelines that once carried oil from the Gulf Coast to the Midwest have been reversed, leaving fuelmakers little access to alternative grades of oil.
“Canadian oil tariffs would risk unpopular, if temporary, gasoline price increases in the US Midwest,” Goldman Sachs Group Inc. analysts including Samantha Dart and Daan Struyven said in a recent note.
Energy imports from Canada were hit with the lower 10% rate to minimize upward pressure on gasoline and home-heating oil prices, the White House officials said.
Last week, fuelmakers warned that the levies would erode refining profits and upend oil markets. US plants could cut refining rates in response, executives at Valero executives said Thursday, while Phillips 66 cautioned that Canadian crude prices will tumble.
“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,” Chet Thompson, president of the American Fuel & Petrochemical Manufacturers trade group, said in an emailed statement.
The tariffs’ implementation will be key in determining the effect on the market. If producers are allowed to export oil off the Gulf Coast to non-US buyers without tariffs, the hit to Canadian oil prices would be muted. Also unclear is how the tariffs will affect the western Canadian oil that’s shipped through the US en route to Canadian refineries in Ontario and Montreal.