The “Will he/Won’t he?” on President Donald Trump’s plans to implement 25% tariffs on all Canadian and Mexican products—including oil— beginning on Feb. 1 apparently extends to the president himself.

“Oil is going to have nothing to do with it as far as I’m concerned,” Trump said at a Jan. 30 talk with the media in the Oval Office.

When asked about oil later at the same press conference, the president said his administration “may or may not” place tariffs on oil.

“They send us oil, and we’ll see. It depends on what the price is. If the oil is properly priced, if they treat us properly, which they don’t. Look, Mexico and Canada have never been good to us on trade.”

Natural gas did not come up during the meeting.

Trump said he’s implementing the tariffs for three reasons: Illegal immigration, fentanyl trafficking and trade deficits.  

According to a report from The Wall Street Journal on Jan. 30, White House officials were looking at implementing more targeted tariffs on specific products as opposed to a blanket 25% fee.  

In 2023, the last full year of data, Canada exported 3.9 MMbbl/d of crude to the U.S.—more than half of all U.S. crude imports—while Mexico exported 733,000 bbl/d, according to the U.S. Energy Information Administration.

Canada and Mexico are the only countries to ship natural gas into the U.S. via pipeline, with Canada making up the lion’s share of contributions. The U.S. imported 253.9 Bcf from Canada in October 2024, the last month EIA statistics are available. Mexico shipped 21 MMcf.

In 2023, Canada supplied the U.S. with 2.052 Bcf from LNG shipments, second only to Trinidad and Tobago, which supplied 11.929 Bcf of natural gas from LNG. (The U.S. leads the world in LNG production but is unable to supply U.S. customers as it has no domestic LNG tanker fleet.)

E&Ps, refiners wait and see

Exxon Mobil (XOM) CEO Darren Woods said there was “a lot of noise and speculation” regarding tariffs. The situation was out Exxon Mobil’s control and the company will continue to focus on production costs and the other things it can control, Woods said during the company’s Jan. 31 earnings call.

Exxon Mobil operates three refineries among its downstream assets in Canada.  

During its earnings call on Jan. 31, Phillips 66 (PSX) executives also emphasized that the tariff situation was unclear, but did consider the potential effects.

“The first thing that happens is TMX (the Trans Mountain Pipeline) gets filled,” said Brian Mandell, PSX executive vice president for marketing and commercial. The TMX is a recently expanded crude pipeline that leads from central Canada to a port on the country’s west coast.

The line can handle more load than it is currently shipping, Mandell said, but it won’t be able to put much of a dent in the supply that currently flows into the U.S.

“The second thing that happens is currently (Canadian) inventories are low, and the inventories will start to fill,” Mandell said. “But ultimately the differentials … will widen to incentivize crude to move into the U.S. because crude actually has to move into the U.S.”

Tough for the northern neighbor

Between Canada and Mexico, the northern neighbor would suffer the most from tariffs on oil, said RBN’s Lisa Shidler in an analysis published Jan. 31.

Mexico has long planned to send more of its oil to its new Bocas refinery and also has more ports available to send its crude to other countries.

The picture is less favorable for Canada.

The Canadian and U.S. oil infrastructure has a massive number of connections, from the northeast to the Gulf Coast. The majority of imported Canadian crude flows into Midwest refineries, which specialize in handling the heavier, sour and generally cheaper blends that come out of Alberta. 

Both countries have options to adjust in case tariffs go into effect, and it’s therefore difficult to determine which country’s energy sector is hit harder.

The U.S. “wins” if Midwest refineries can rapidly replace their usual load of Canadian crude with oil piped in from other regions of the U.S.—without paying a premium.

“There are a number of ways that some of the crude from the Bakken and the Denver-Julesburg (DJ) Basin and the Cushing, Okla., hub now headed to export docks along the Gulf Coast could instead be diverted to refineries in the Midwest,” Shidler said. Midwest refineries would have to pay more and would have to adjust their processes for lighter crude, but could weather the storm.

Canadian crude producers currently have little recourse other than to continue sending most of their crude through U.S.-bound pipelines. The Trans Mountain Pipeline could potentially handle more crude. Most produced oil would still fall under the potential tariff.

“While the tariff penalty will be shared, Canadian producers would likely need to absorb most of the penalty, perhaps three-quarters of it,” Shidler said. “U.S. refiners, forced to reduce runs and use less-than-optimal crudes, would eat the difference, perhaps 25%.”

Canadians could also face the follow-on factor of a fuel-cost increase, since much of the country’s gasoline and diesel is refined in the U.S.

Shildler said the tariffs, if implemented, would probably last a few weeks at most.

The majority of companies in the energy sector don’t want to deal with the massive delivery shifts, and it’s unlikely the Trump administration will tolerate an increase in fuel prices that are likely to come with tariffs.

Plus, “Canadian officials would likely reach an accommodation with the president to give Trump the win he clearly wants,” Shidler said.

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