By Avi Salzman

U.S. refiners could be among the hardest-hit industries from tariffs on Canada and Mexico.

President Donald Trump imposed 25% tariffs on Canada and Mexico on Tuesday, with Canadian energy products facing a 10% levy. The U.S. imports around four million barrels of oil from Canada every day, and another 450,000 or so from Mexico. Many of those barrels go to U.S. refiners in the middle of the country for processing into fuels.

Supplies from Canada and Mexico are at the heart of the U.S. oil industry, making up much of the gasoline and diesel that Americans use. For technical reasons, it's very hard to replace those barrels with other easily available supplies. Canadian and Mexican oil is heavier and contains more sulfur than the oil that comes out of the ground in much of the U.S. Most U.S. refiners were built to use those heavier grades, sometimes mixing it with the "light, sweet crude" that is produced in the U.S.

Adding new costs to bring Canadian and Mexican oil into the U.S. disrupts the supply chain. Someone will have to pay those costs. Most likely, they'll be paid by every player in the chain, from the Canadian and Mexican producers to refiners to consumers.

The stocks of Canadian oil producers have been hit hard by the tariffs. Canadian Natural Resources, the largest player, is down 4% on Tuesday and 18% for the year. Canadian companies may have to eat most of the tariff, because they don't have alternate pipelines to route their crude oil away from the United States.

The rest will have to be paid by refiners, which will kick some of the cost along to consumers. Assuming an oil price of $60 (around where Canadian oil trades), a 10% tariff amounts to $6 per barrel, or 15 cents per gallon.

It's difficult to determine how much of that cost will be passed along to consumers. The impact will vary by region. The Northeast could face the largest price hikes because the region imports refined products directly from Canada, according to an analysis by GasBuddy. So consumer costs there could be higher than the 15-cent estimate, because the tariff would be applied directly to the refined fuels. That means gasoline could rise by 20 to 40 cents per gallon, GasBuddy says.

Refiners will also probably still have to cover some of the cost. They had started the year in decent shape, recovering from a selloff in 2024 caused by low margins on gasoline and diesel fuel. But now their stocks are selling off, too. The VanEck Oil Refiners exchange-traded fund was down 1.8% on Tuesday.

Among refiners, S&P Ratings finds several that import significant amounts of crude from the two affected countries. Among the largest purchasers of Canadian crude are Marathon Petroleum, Phillips 66, Flint Hills Resources (owned by privately held Koch Inc.), CITGO (majority-owned by Venezuelan company PdVSA), HF Sinclair, and PBF Holding. Among the largest purchasers of oil from Mexico are Valero, Deer Park Refining (owned by Mexican company Pemex), PBF, Phillips 66, and Marathon, according to S&P.

Another key factor that will determine the impact on refiners is where those refineries are located. "Midcontinent" refiners, or those located in the center of the country, could be hit particularly hard, because they don't have easy access to crude from other areas so they can avoid the tariffs. That includes Valero, Marathon, Par Pacific, HF Sinclair, Citgo, Phillips 66, and PBF.

Write to Avi Salzman at avi.salzman@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 04, 2025 12:39 ET (17:39 GMT)

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