Canada's Oil Exports and US Tariffs: Impact on Economy

Canada exports nearly all of its oil to the US, facing new tariffs. Experts suggest some costs may be absorbed by US refineries, but the impact on the market remains significant.


Canada's Oil Exports and US Tariffs: Impact on Economy

Canada sends almost all of its oil exports, around 4 million barrels per day, to the United States, being the largest foreign source of crude for that country. Refineries in the U.S. benefit from Canadian heavy crude, which is relatively cheap, converting it into fuel in a more cost-effective manner than local light oil.

The Canadian energy sector has so far avoided problems in the trade war with the U.S. thanks to measures taken by President Donald Trump to impose lower tariffs on imported oil. The 10% tariff is less than half of what was expected, which could allow producers to avoid taxes on some shipments.

Eric Nuttall from Ninepoint Partners in Toronto pointed out that, while frustrating and insulting, the situation is not catastrophic for energy producers. The discount on Canadian heavy crude could increase due to tariffs, but it is likely that part of that additional cost will be absorbed by U.S. refineries.

The tariffs, while threatening to disrupt the North American energy market, could exempt Canadian oil crossing the U.S. and exported from the Gulf Coast. Canada has the Trans Mountain pipeline as a partial shield against tariffs, allowing it to divert some of its exports to markets outside of the U.S.

The impact of the tariffs is especially expected in the province of Alberta, Canada's main oil producer. While Canada responds with tariffs on products manufactured in the U.S., uncertainty remains about the economic impact and global oil demand.

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