By Jinjoo Lee

After days of trying to process what tariffs on Canadian and Mexican oil might mean for their business, U.S. refiners saw their shares bouncing on news that the tariffs would be delayed.

Refining giants Marathon Petroleum and Valero Energy were up 6.6% and 4.2%, respectively, and were both among the top-10 gainers on the S&P 500 as of early afternoon Tuesday. It also helped that Marathon on Tuesday reported better-than-expected earnings.

The proposed 10% tariffs on Canadian energy and 25% on imports from Mexico would have caused headaches and added costs for U.S. refiners. Canada and Mexico are the two largest sources of crude oil imports for the U.S., supplying about 60% and 7% of crude oil imports, respectively. While the U.S. is a net exporter of crude oil, most of its refineries need heavy crudes-the types supplied by Canada and Mexico-to run efficiently. Most of the crude oil produced domestically is the lighter variety.

Refiners with a heavy footprint in landlocked areas-such as the Midwest and the Rocky Mountain regions-might have borne heavier costs than others. Most Canadian crude ends up in those places where there aren't many alternative heavy crude options. Refiners with the highest exposure to Canadian crude rallied the most Tuesday. HF Sinclair and Par Pacific, for instance, rely on the Northern neighbor for more than a quarter of their crude input, per estimates from energy-focused investment bank Tudor, Pickering Holt $(TPH)$. HF Sinclair shares rose 6.5%, while Par Pacific added 6.1%.

Marathon Petroleum relies on Canada for 17% of its crude diet, according to TPH. But Rick Hessling, Marathon's chief commercial officer, said on the company's earnings call Tuesday that it has worked "tirelessly for a long time" on its logistics capability. He noted that many of its refineries in the mid-continent region can pivot to local crudes such as those from the Bakken and the Rockies.

Even so, switching to lighter crude would come with costs of its own: Doug Leggate, equity analyst at Wolfe Research, noted in a report that refiners choosing to shift to lighter crude may have to lower their refinery runs "given the higher light product yield that its system may not be able to process." TPH estimates that a 10% tariff on Canadian oil could cause a $2 to $4 per barrel cost for Canadian producers, $1 to $2 a barrel for U.S. refineries and $1 to $3 a barrel for U.S. consumers.

The ultimate split of those costs won't be known unless the proposed tariffs are actually put in place. What is clear is that there aren't many clear winners in the oil industry from a tariff scenario.

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(END) Dow Jones Newswires

February 04, 2025 13:37 ET (18:37 GMT)

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