Canadian Oil Expected to Be Unaffected by Trump's Trade Tariffs
The Canadian energy industry anticipates that the protective trade policies proposed by elected President Donald Trump will not target Canadian oil imports due to U.S. refiners' high dependence on Canadian products. Sources within the industry state that Trump's election could increase energy investments in North America and potentially lead to higher U.S. dollar earnings for Canadian crude oil producers. However, there are concerns that an increase in oil and gas production in the U.S. could intensify competition for Canadian exports to other regions.
Canada is the fourth-largest oil producer and the sixth-largest natural gas producer globally. The country exports about 4 million barrels of crude oil daily, a significant portion of which goes to the U.S. This relationship is crucial, as a decline in energy trade could significantly impact the Canadian economy.
Despite Trump's mention of a potential 10% tariff on imported goods, analysts believe that Canadian oil will be exempt because U.S. production does not include the same types of heavy sour crude. Analyst Jeremy McCrea from BMO Capital Markets explained that it would be difficult to impose tariffs on Canadian oil due to the lack of easily available alternatives.
U.S. refiners, particularly those in the Midwest and Gulf Coast, have made significant investments to process Canada's heavy sour crude. In the Midwest, nearly all refinery feedstock is sourced from Canada. Tariffs on this import could lead to higher refining costs and, consequently, higher fuel prices for consumers.
Analyst Rory Johnston from Commodity Context considers the likelihood of tariffs on Canadian oil to be extremely low. Nevertheless, any trade restrictions could harm Canadian producers with limited export options. A potential 20% tariff could double the current discount on benchmark heavy crude and create a surplus in Alberta.
Representatives from the Canadian oil industry view Trump's presidency as potentially beneficial, expecting less regulation that could encourage investment. Tristan Goodman, CEO of the Explorers and Producers Association of Canada, predicts that Trump's pro-development stance could positively impact Canada’s energy sector.
The strong position of the U.S. dollar against the Canadian dollar post-election may benefit Canadian oil producers who cover their costs in Canadian dollars but sell their products in U.S. dollars. This situation coincides with a period when the Canadian currency is trading close to two-year lows.
Canada's energy exports to the U.S. were worth CAD 124 billion in 2023, and the Trans Mountain expansion project is anticipated to boost exports to Asia. Additionally, the LNG Canada terminal, led by Shell, along with other LNG export projects, is expected to come online soon, expanding Canada's access to the global market. However, this also means that Canadian exports will compete with U.S. oil and gas on the world stage.
The Canadian dollar is valued at 1 USD = 1.3858 CAD.