A recent report by Wood Mackenzie suggests that proposed US oil tariffs on Canada and Mexico could trigger a significant shift in North American crude flows.

The analysis, How would Trump tariffs affect North American oil markets?, examines the potential impacts of 10 per cent and 25 per cent tariffs on Canadian and Mexican oil products, respectively.

Dylan White, principal analyst for North American Crude Markets at Wood Mackenzie, notes that the implementation of tariffs has been delayed by a month, leaving room for various scenarios.

“The uncertainty surrounding US policy is likely to continue; ongoing talks could lead to a lifting of tariffs or could spiral into steeper penalties on oil imports,” White explained.

In a 25 per cent tariff scenario, Mexican oil exports are expected to shift away from the US towards European and Asian markets.

This could affect approximately 600,000 barrels per day of Mexican crude imports to the US.

However, the impact might be mitigated by the closure of the Lyondell Houston refinery and the launch of Pemex’s Dos Bocas refinery.

White highlighted that US refineries, particularly on the West and Gulf Coasts, would need to seek alternative heavy crude supplies from Latin America and the Middle East, with Iraq being a potential major source.

However, these alternatives are generally more expensive than Canadian and Mexican supplies.

For Canada, a 10 per cent tariff scenario would likely see Canadian crude continuing to flow to the US Midwest and Gulf Coast.

White noted that Midwestern refineries, being landlocked, have limited alternatives to Canadian heavy crude.

The Trans Mountain Pipeline, including its expansion (TMX), could facilitate increased Canadian crude shipments to Asia, potentially reducing flows to the US West Coast.

However, Wood Mackenzie does not anticipate a 10 per cent tariff to be sufficient to redirect Canadian barrels from the US Gulf Coast to Asia.

Wood Mackenzie projects that the proposed tariffs could reduce US oil demand by 50,000 barrels per day by 2026, partly due to higher refined product prices.

The report suggests that relief from domestic producers is unlikely, as US Lower 48 production growth is expected to remain measured, driven primarily by major companies in the Permian Basin.

As negotiations continue and policy uncertainty persists, the North American oil market braces for potential shifts in crude flows and pricing dynamics.

The ultimate impact will depend on the final implementation of tariffs and the response of market participants across the region.