Analysts and fuel dealers predict that President Donald Trump’s decision on Saturday to impose tariffs on Canadian and Mexican oil will result in higher gas prices for American consumers.
The anticipated increase in fuel costs illustrates the dual nature of Trump’s trade barriers, which are intended to support local companies and put pressure on the United States’ neighbors to stop illegal immigration and drug smuggling. However, they will also go against his pledges to address inflation.
About 4 million barrels of Canadian oil are imported into the United States daily, with refiners in the Midwest processing 70% of this supply. Additionally, it imports more than 450,000 barrels per day of Mexican oil, primarily for refiners located along the Gulf Coast of the United States.
Higher production costs for finished fuels like gasoline result from tariffs on those imports, and most of those expenses are probably passed on to American consumers.
In a social media post, GasBuddy analyst Patrick De Haan stated that if oil and refined products are not protected, expect fuel prices to increase significantly. In a phone interview with Reuters, he stated that the longer the tariffs are in place, the bigger the impact on consumers will be.
Refining businesses in the United States are represented by the American Fuel and Petrochemical Manufacturers Association, which stated on Saturday that it hopes the tariffs be removed before consumers begin to experience the effects.
To handle a national emergency over fentanyl and illegal aliens entering the United States, Trump on Saturday imposed 25% tariffs on imports from Canada and Mexico and 10% on goods from China beginning on Tuesday, according to White House officials.
According to the officials, Canadian energy exports would only be subject to a 10% levy, while Mexican energy imports will be subject to a full 25% duty.
According to the officials, Trump lowered the Canadian oil duty in an attempt to lessen the impact on energy costs after originally announcing a 25% tariff on all imports from Canada and Mexico.
A symbiotic oil trade between the United States and its neighbors is about to be upended by the developments. For instance, Canada’s oil output surpasses its current demand, and many U.S. refineries are designed to churn the heavy and medium crude oil grades that Canada produces.
John LaForge of the Wells Fargo Investment Institute told Reuters that someone was going to be somewhat harmed in this situation.
According to him, refiners in the Midwest have limited options regarding where to obtain their feedstock, and Albertan oil has limited options regarding where it goes.
Finding alternatives to the Mexican crude oil grades was probably going to be simpler for Gulf Coast refiners, who, in contrast to Midwest refiners, had access to seaborne shipments.
Since the post-COVID spike in fuel margins has subsided due to oversupply and slowing demand growth, companies in the wholesale fuel sector say they have little option but to pass on the increased cost to customers.
Alex Ryan, energy director of Oasis Energy, a Kansas-based company that runs a travel agency and has a convenience store that sells fuel, said, “We’re in a kind of hand to mouth situation here.”
According to Ryan, his team is still awaiting refiners’ input on the projected cost increase. The company also supplies fuel to other markets.
“There’s nothing we can do about it, and in the end, it ends up in the consumer’s lap,” Ryan stated.
Drivers on the East Coast felt the pinch as well. Only over half of the daily fuel demand is satisfied by the region’s refining capability; the Colonial Pipeline, which pumps more than 100 million barrels of petroleum per day from the Gulf Coast, provides the majority of the remaining fuel.
That pipeline, however, is nearly always filled. The primary swing provider to the East Coast during times of strong demand has been Irving Oil’s St. John’s refinery in New Brunswick.
The 10% charge will apply to certain imports.
According to De Haan, the East Coast will either have to pay more for petroleum imports from Canada or rely on importing fuel from Europe to make up the difference.
The impact of the levies may be more gradual at Midwestern pumps because refiners there have been producing fuel at higher rates and hoarding Canadian oil in recent months, according to analysts.
Nevertheless, the tariffs are expected to increase expenses.
“In any case, you’re going to have to pay more,” stated LaForge of Wells Fargo.