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U.S. President Donald Trump has imposed sweeping tariffs on Canada, Mexico and China, triggering volatility in the commodity and energy markets. The move includes a 25% tariff on Canadian and Mexican exports and a 10% levy on Chinese imports, aimed at addressing illegal immigration and drug trade concerns. In response, the affected nations have vowed to retaliate, while China has signaled plans to challenge the measures at the World Trade Organization.
Impact on Oil and Gas Markets
Goldman Sachs predicted that Canadian oil producers will bear most of the cost, leading to a $3-$4 per barrel widening of the Canadian crude discount due to limited alternative export routes. U.S. refiners and consumers will also see increased costs, adding another $2-$3 per barrel burden. Meanwhile, Barclays noted that refineries in the U.S. Midwest, which process Canadian crude, will share the incremental costs with producers and end consumers.
Unlike crude oil, the impact on natural gas exports is expected to be more muted. Goldman Sachs forecasted a modest decline of 0.16 billion cubic feet per day in Canadian natural gas exports to the United States due to the 10% tariffs.
Understanding the Tariffs and Their Implications
Trump’s tariffs, primarily targeting steel, aluminum, and Chinese goods, could significantly affect the energy market, both directly and indirectly. One major concern is the impact on U.S. refiners, many of who depend on imported crude oil, particularly heavier grades from Canada and Mexico. If tariffs result in retaliatory trade barriers or higher import costs, refining margins could come under pressure, making operations less profitable.
Additionally, the energy sector is a major consumer of steel and aluminum, materials essential for constructing pipelines, drilling rigs and refining units. Higher costs for these raw materials due to tariffs could slow down infrastructure projects and reduce overall profitability, potentially delaying critical developments in the industry.
However, there could also be potential benefits for U.S. oil producers. Tariffs on foreign oil imports may make domestically produced crude more attractive, causing refiners to seek alternatives within the country. This shift could particularly benefit shale producers, whose low-cost operations might see increased demand as refiners adjust to the changing trade landscape.
U.S. Energy Stocks Likely to Benefit
Despite the near-term volatility, we have identified three U.S. energy companies that stand to gain significantly in the evolving tariff landscape. These are EOG Resources (EOG), Cheniere Energy (LNG) and Exxon Mobil Corporation (XOM). While EOG Resources carries a Zacks Rank #2 (Buy) at present, Cheniere Energy and ExxonMobil have a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.