Robbing Peter to pay Paul.The good news as far as American politicians are concerned is that tariffs on Canadian and Mexican oil would raise USD$20 billion for government coffers. The bad news is those same surcharges would cost American consumers a whopping $22 billion in higher energy costs, for a net $2 billion loss.That’s not including the effects of higher inflation and a lower stock market Wall Street investment gurus Goldman Sachs said in a report Friday.Canadian oil producers, would be mostly unaffected unless American refiners in the landlocked US Midwest were to somehow miraculously reroute 3.8 million barrels per day (bpd) of Alberta heavy oil from Venezuela or the Middle East.The downside, from a Canadian perspective, is that domestic producers like Cenovus would likely take a $10 billion hit in the form of wider price differentials or higher costs developing overseas markets..The tariffs, expected to take effect in March, is contingent on Canadian efforts to fight cross border fentanyl trafficking, but doesn’t preclude the possibility of an even greater 25% tariff hit sometime down the road.With Canadian heavy crude heavily reliant on US refiners due to limited alternative buyers and processing capabilities, the tariffs threaten to disrupt continental trade flows, Sachs said.Nonetheless, analysts predict the Lower 48 will remain the primary destination for heavy crude, as advanced refining infrastructure and cost efficiencies continue to make American refiners the most competitive buyers. However, Canadian producers will likely face steeper discounts to offset the impact of tariffs, further squeezing margins.Currently, Canada exports approximately 3.8 million barrels per day (bpd) of crude oil to the US via pipeline, with an additional 1.2 million bpd of seaborne heavy crude imports from Canada and Latin America, including Mexico and Venezuela. While the tariffs are designed to boost domestic energy production, they could end up hurting US refiners that rely on Canadian heavy crude, the report said..Calgary-based Cenovus Energy, one of Canada’s largest oil producers and the US’ biggest refiners, is closely monitoring the situation but says the tariffs will not impact its immediate spending plans. However, CEO Jon McKenzie acknowledged last week that if the tariffs are implemented, the company may need to “rebalance away from the United States” in terms of where it ships its oil.“We will watch those price signals and react accordingly,” McKenzie said during Cenovus’s fourth-quarter earnings call. Geoff Murray, a Cenovus executive vice-president, noted that oil shipped via the Trans Mountain pipeline, which currently sees a 50/50 split between California and Asia, could be redirected more toward global markets if the tariffs make US sales less attractive. .While Trump’s tariffs are framed as a way to protect domestic industries, they could inadvertently lead to increased energy costs in the United States. The tariffs could also strengthen the US dollar — by devaluing others like the Canadian loonie — further weighing on publicly listed companies that derive significant revenue from international markets. Historical data from Goldman Sachs shows that previous tariff announcements in 2018 and 2019 led to declines in the stock market, with the S&P 500 falling by 5-7% on days when the U.S. and its trade partners imposed new levies.Likewise, analysts at Wood Mackenzie suggest the tariffs would drive US oil demand down by approximately 50,000 bpd by 2026 due to higher refined product prices. While Canadian crude is expected to continue flowing to the US Midwest and Gulf Coast, it suggested some barrels may be redirected to Asia, particularly throughTrans Mountain.The potential for retaliatory measures from Canada also raises concerns about energy security in the US. The Midwest, which heavily relies on Canadian imports, has no immediate viable alternative, meaning supply shortages and price spikes could occur said Wood Mackenzie.
