President Trump’s decision to impose a 10% duty on all Canadian petroleum imports has significant implications on crude oil economics on both sides of the border. In this article, we review historical trade flows between Canada and the U.S., the significance of Canadian crude imports on U.S. crude oil supply, the financial impact of the proposed duty, and potential economic impacts and longer-term implications.
Historical Trade Flows
Almost all of Canada’s crude oil exports flow to the U.S., with the majority being delivered by pipeline. Additional waterborne crude oil is imported to PADD 1 (the U.S. East Coast) and PADD 5 (the U.S. West Coast).[1] These flows have remained fairly constant over the past five years, although waterborne exports from the Canadian West Coast to PADD 5 increased significantly in 2024 following the Trans Mountain pipeline expansion.
Canadian Crude Oil in the U.S.
As can be seen in the following chart, Canadian crude oil is a significant component of U.S. crude oil supply. In 2024, 62% of total U.S. crude oil imports and 25% of net U.S. refinery crude oil inputs were comprised of Canadian crude oil. Canadian crude oil dominates the PADD 2 (Midwest) and PADD 4 (Rocky Mountain) markets where it represented 100% of total imports and 73% and 44% of net refinery input respectively. Canadian crude oil made up 94% of net refinery input in the northern tier of PADD 2.
Canadian Crude oil Supply to the U.S. (2024)
sources: U.S. Energy Information Administration and Stillwater analysis
Financial Impact
The actual cost of President Trump’s 10% duty will depend upon the benchmark crude oil price, West Texas Intermediate (WTI) in the case of most Canadian crude oil, and the quality and location differential to WTI. For Western Canadian Select (WCS), the heavy Canadian crude oil marker price, the duty would amount to $6.30 U.S. per barrel,[2] which compares to the current duty rates for imports from other countries of 5.25 US cents per barrel for heavy crude and 21 US cents per barrel for light crude.[3]
Economic Impacts
Who pays for the 10% duty is an unanswered question at present. The waterborne supply currently flowing to the U.S., representing a potential volume of more than 750 thousand barrels per day (KBD) – 18% of Canadian imports to the U.S.[4] – could be diverted to other destinations if higher netbacks can be achieved after accounting for the U.S. duty. The remainder of Canadian exports are currently locked into U.S. markets. As a result, it would be easy to suggest that the duty would flow back to the Canadian exporter. However, northern tier PADD 2 and PADD 4 refineries have now become dependent upon Canadian crude oil and, like Canadian exporters, have few options. [5]
PADD 2 (Midwest)
Historically, Canadian crude delivered to the northern tier PADD 2 refineries competed with U.S. domestic and offshore imported crude oil, but most of the pipelines utilized for those movements now flow south; re-reversing those pipelines is not a near term option. While my crystal ball has never been particularly accurate, Canadian exporters may have the upper hand.
Exports through Trans Mountain’s facilities averaged just over 350 KBD[6] since the expanded facilities became available in June 2024. Although limited in scope, this data suggests that incremental export capacity is available to Canadian crude oil exporters beyond what was used in the four months that it was available in 2024. Canadian crude oil has also been exported from USGC ports in the past[7] and future use of those facilities could increase.[8] These options could provide Canadian exporters with options that can be leveraged to pass some or all of the import duties through to their PADD 2 customers in the near-to-medium term.
PADD 4 (Rocky Mountain)
PADD 4 refineries are in even worse shape because they have no existing logistics alternatives aside from local production. Canadian crude oil exporters will have even greater leverage to pass along some or all of the import duties to their PADD 4 customers, especially to the Montana refineries designed to run heavier, sour crude oil.
No matter what economic theory suggests might happen, exporters and U.S. consumers of Canadian crude oil face significant uncertainty until such time as the market adjusts to the new tariffs. This adjustment will be made all the more difficult by the whipsaw effect of on-again, off-again tariff announcements coming from the U.S. administration.
Longer-Term Implications
Canadians are angry! They feel betrayed by the blanket duties being imposed by the U.S. considering the long-term, (more or less) friendly relations between the two countries. They are particularly incensed by President Trump’s statements that Canada should become the 51st state. Previous anti-American sentiments were typically limited in scope but are now widespread.
Nonetheless, the Canadian and U.S. markets, particularly for energy, are highly integrated. The majority of Canada’s crude oil production is landlocked, and existing logistics restrict it to the U.S. market. The majority of Canada’s refineries are not capable of refining the heavy, sour crude oil that Canada exports to the U.S. Building the new infrastructure necessary to divert this production from existing U.S. markets to tidewater is significant and may be insurmountable.[9]
Previous pipeline projects, Northern Gateway and Energy East for example, secured sufficient commercial support to be viable but were unable to survive through the permitting process.[10] The shippers that had committed to these pipeline projects have moved on and their willingness to support reactivated projects cannot be taken for granted. Each project would have to stand on its economic merits. Given that President Trump is term-limited and the uncertain likelihood of these tariffs persisting over the long term, shippers may be reluctant to make the long-term commitments necessary for these pipeline megaprojects to achieve commercial certainty. I doubt that their anger with President Trump will be a sufficient motivator. However, the Alberta government’s ability to take its bitumen royalty interest in kind and direct it towards a revived pipeline project may be sufficient to ensure commercial certainty.
If future pipeline projects secure commercial certainty, it is uncertain if the anger being felt by Canadians will be sufficient to pave the way for pipeline megaprojects to be successful in the future. Memories are short, and past environmental and territorial objections to these pipelines are likely to be reactivated.[11] Whether or not the economic imperative to reduce Canada’s dependence upon the U.S. export market will be sufficient to overcome the environmental and other objections to interprovincial pipelines remains to be seen.
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