US Bunker Prices Expected to Rise as Trump Indicates Delayed Tariffs on Canada, Mexico to Go Ahead

US refineries currently processing Canadian crude will either need to replace it with lighter crudes from elsewhere ... or pay the tariffs

US President Donald Trump has indicated that tariffs on imports from Mexico and Canada, delayed for 30 days, will now go ahead as planned, a move likely to have a significant impact on bunker markets in the region.

The Trump Administration had intended to impose 25% tariffs on most imports from Mexico and Canada, before postponing the decision by 30 days at the start of this month to allow further negotiations to be carried out. With the end of the delay period now in sight, these tariffs look likely to be imposed.

Crude oil is the largest import to the US from Canada. The US imports around 4 million b/d of Canadian crude, with most of this being taken by refineries in the Midwest.

Heavy Canadian crude delivers a high yield of fuel oil from crude distillation units.

Unless a similar crude can be procured from another producer such as Venezuela, US refineries currently processing Canadian crude will either need to replace it with lighter crudes from elsewhere - giving lower fuel oil output - or pay the tariffs. Both options will likely mean bunker prices will have to be raised in the US.

Canada would presumably look for alternative markets to export its oil to, with the heavy crude more likely to interest buyers in China rather than Europe, but nether this or the the tarifs themselves are expected to impact the pricing of Canadian bunkers - at least in the near term.

Mexican product, meanwhile, took up about a third of all US fuel oil imports over the past two years, with much of this product ending up in the US Gulf bunker market.

With no fallback option of switching to Canadian oil, unless an altrenative heavy product can be found then refiners in the US Gulf market will also be faced with either paying the tarrif or replace Mexican product with a lighter crude, such as domestic oil. Both options will means an increase in bunker prices. 

The stated reason for the tariffs is perceived inaction by the Mexican and Canadian governments on illegal drugs being brought into the US from these countries. President Trump still sees insufficient progress on this issue, he said in a social media post on Thursday.

The administration also plans to add an additional 10% tariff on imports from China, the president added.