Article Summary –
The U.S. heavily depends on Canadian crude oil, accounting for over 50% of its oil imports, but faces a potential challenge with President-elect Trump’s proposed tariffs on Canadian and Mexican products, which could increase energy costs and fuel inflation. Canada, the U.S.’s largest trading partner, exports almost all of its oil to the U.S., although the U.S. has become the world’s largest crude oil producer; this reliance is due to the U.S. refining infrastructure being optimized for heavier crude oil from Canada. Despite stable oil prices and a decrease in energy costs in 2024, tariffs on energy imports could lead to higher gasoline prices, impacting consumers and potentially exacerbating inflation.
NEW YORK (AP) — The U.S. increasingly depends on Canadian crude oil to satisfy domestic demand, a relationship that might face challenges due to potential tariffs from President-elect Donald Trump. Potential tariffs on Canadian crude could impact this reliance.
Over 50% of the U.S.’s crude oil imports now come from Canada, rising from 33% in 2013. This surge is due to increased production in Canada’s western provinces and enhanced pipeline capacity to the U.S. An additional 10% of imports are from Mexico.
Trump has proposed tariffs up to 25% on Canadian and Mexican imports, sparking fears of rising energy costs across the U.S. economy, potentially making gas and other petroleum products costlier and reigniting inflation.
“All three countries are economically interdependent, and steep tariffs on key U.S. imports like crude oil might worsen consumer inflation,” noted a UBS Financial Services report led by Solita Marcelli, Chief Investment Officer of the Americas.
Canadian authorities are evaluating their response if Trump acts on his tariff threat. Ontario’s leader has suggested restricting American alcohol imports and energy exports. However, Alberta’s head, rich in oil reserves, opposes cutting oil exports, seeking instead a resolution.
As the U.S.’s largest trading partner, Canada exports nearly all its oil to its southern neighbor.
Despite the U.S.’s own oil boom, Canadian oil remains dominant in U.S. imports. The U.S. is the top global crude producer and a net exporter, yet it must still import to meet demand due to factors like chemistry, infrastructure, geography, and pricing.
The U.S. mainly produces light, sweet crude, easier to refine than Canada’s heavier crude. However, U.S. refining infrastructure is better suited for heavier crude due to historical import patterns. Heavier crude is cheaper but tougher to refine.
Oil prices have been mostly stable in 2024, with the OPEC cartel limiting production in response to weaker global demand. Energy commodities have declined this year, easing inflation rates.
Fuel oil costs dropped 19.5% in November compared to a year earlier, contributing to an 8.5% reduction in energy commodity costs, according to U.S. government reports. Gasoline prices have also fallen since last year.
Energy tariffs might increase consumer prices through refined oil products. A significant impact would likely be observed at gas stations, potentially fueling broader inflation.
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