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Mexico’s President Claudia Sheinbaum has announced that U.S. tariffs are on hold for one month after she held talks with President Trump and pledged to send 10,000 troops to the border to fight drug trafficking. Trump also spoke to Canadian Prime Minister Trudeau to discuss the punitive tariffs, saying that Ottawa has “misunderstood” the situation. Over the weekend, Trump slapped Canada and Mexico with duties of 25% and China with a 10% levy. Oil flows facing tariffs represent 44% of U.S. oil product imports, 69% of crude oil imports and 81% of heavy crude oil imports. Last week, Trump engaged in his usual isolationist bluster, claiming that the U.S. does not need Canadian commodities including oil and lumber. “We don’t need anything they have. We have unlimited Energy, should make our own Cars, and have more Lumber than we can ever use. Without this massive subsidy, Canada ceases to exist as a viable Country,” he said while speaking at the World Economic Forum.
However, the experts have pointed out that Trump needs a reality check.
“It’s not factually correct,” Richard Masson, an executive at the University of Calgary’s School of Public Policy, told CTV News. “They do need our oil. We ship diluted bitumen, so four million barrels a day go to the states; more than two million barrels a day of that is diluted bitumen. It goes to refineries that are specifically configured to process it, especially in Minneapolis, Chicago and Wood River. That’s why they rely on it so heavily. So, the first part is hopefully we can talk to him and educate him if he doesn’t understand it. I’m sure that the big refiners in the U.S. are doing that now. But if it turns out that he’s going to put a tariff on it, then our challenge will be what happens to overall demand.”
Related: Canadian Crude Becomes a Bargain for China as US Tariffs Bite
Similarly, commodity analysts at StandardChartered have painted a dire picture of the situation, saying oil buyers in the Midwest will almost certainly pay the price of the tariffs thanks to the limited substitutability of Canadian crude with other oils resulting in strong pass-through to retail prices.
According to the analysts, the U.S. imported ~ 6.6 million barrels per day (mb/d) of crude oil in the first 10 months of 2024, of which 4.0 mb/d was heavy oil for use in upgraded refineries with cracking units. Canada provided 75% of U.S. heavy crude oil imports in 2024, with its market share having steadily increased since 2000, squeezing outflows from Mexico, Venezuela and Colombia. Some 80% of Canada's crude production flows downstream to U.S. refiners, with U.S. imports of Canadian crude reaching a record high of 4.42M bbl/day in the week ending January 3, according to the U.S. Energy Information Administration.