Canada and Mexico export mainly heavy, high-sulfur crude oil that is processed in complex refineries in the U.S. and much of Asia.
Canadian and Mexican oil producers will likely be forced to cut prices and divert supplies to Asia if U.S. President-elect Donald Trump imposes 25% tariffs on crude imports from both countries, traders and analysts said.
Two sources familiar with Trump's plan told Reuters that oil would not be exempt from possible tariff increases on imports from Canada and Mexico, even though the U.S. oil industry has warned that the policy could harm consumers, the industry and national security.
The United States accounts for 61% and 56% of Canadian and Mexican crude exports, respectively, according to Kpler ship-tracking data.
Canadian crude exports have soared 65% to about 530,000 barrels per day (bpd) so far this year, according to data, after the opening of the expanded Trans-Mountain pipeline boosted shipments to the United States and Asia.
"Canadian producers, if they face export restrictions, if they are not able to redirect their barrels that were previously exported to the United States to other markets, may face deeper discounts and may also suffer some revenue losses," Daan Struyven, co-head of global commodities research at Goldman Sachs, told reporters on Wednesday.
Canada and Mexico export mainly heavy, high-sulfur crude oil that is processed in complex refineries in the U.S. and much of Asia.
"The impact is all on heavy grades. What are US refiners going to do? Even Saudi Arabian heavy crude is capped," said a trader in Singapore, adding that some US refiners can only receive crude via pipeline, limiting their import options.
"Either the producer or the refiner will have to absorb the tariffs," he said, adding that Canadian producers will have to discount their oil further to attract demand from Asian refiners and cover long-distance transportation costs.
Asian refining sources and analysts said they expect to see more Canadian and Mexican oil heading to Asia if Trump imposes the tariffs.
