Potential U.S. tariffs on Canadian oil imports would likely raise operating costs for Midwest refineries, which would have to make changes to process lighter grades of crude or find other sources of heavy crude, the Royal Bank of Canada said on Wednesday.

The bank said imports of Canadian oil can strengthen U.S. energy reserves and lower consumer costs by helping meet growing U.S. demand. It also said Canadian imports enhance the U.S.'s ability to export petroleum without raising prices at the pump.

President Trump in early February paused for 30 days a planned 10% tariff on U.S. imports of Canadian crude oil and a 25% tariff on Mexican oil imports after the two countries agreed to beef up border security.

RBC said Trump's decision to impose less-punitive 10% tariffs on Canadian energy reflects the strategic importance of those resources to American interests.

Canada currently accounts for 60% of U.S. total oil imports and its share has grown sharply over the past several decades to 24% of total U.S. oil consumption.

U.S. refineries have increased their use of the relatively cheaper Canadian oil, thanks to cross-border pipelines that are delivering heavy crude directly to refineries that are designed to process it.

"For these refineries, particularly those in the Midwest, moving away from Canadian heavy crude would leave them with high retooling costs or dependent on alternative sources such as Venezuela or the Middle East, exposing them to geopolitical risks," the bank said.

In addition, RBC said the tariff would affect the Trans Mountain pipeline expansion that began service in May and supplies U.S. West Coast refineries.

The project has nearly tripled Canada's oil export capacity via its West Coast terminals, playing a key role in supporting Asian allies like South Korea and Japan.

U.S. refiners including Valero Energy, Phillips 66 and BP recently said tariffs on Canadian oil imports could lead them to reduce output or deal with logistical issues as they try to find replacement crude from other sources.

Marathon Petroleum, the largest U.S. refiner, said last week that Canadian oil producers would absorb most of tariff costs, with a smaller share passed along to consumers.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

--Reporting by Frank Tang, ftang@opisnet.com; Editing by Jeff Barber, jbarber@opisnet.com

(END) Dow Jones Newswires

February 12, 2025 13:44 ET (18:44 GMT)

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