The comparatively constant gas prices that American drivers have been paying during a seasonally quiet period for fuel demand could be upended by President Trump’s promise to impose 25% tariffs on Canada and Mexico as early as this Saturday.
Taxes are similar to speed bumps on the path to financial efficiency. The repercussions are certain, regardless of the industry—oil, agriculture, or lumber,” stated Hakan Kaya, senior portfolio manager at Neuberger Berman.
Amid disagreements over immigration, drug trafficking, and changes to the U.S.-Mexico-Canada Agreement (USMCA), a free-trade agreement, Trump has threatened to impose tariffs on Canada and Mexico this weekend.
“Tariffs would be passed on to U.S. consumers via higher fuel prices,” said Raymond James analyst Pavel Molchanov.
Although the precise price impact would vary by state, Raymond James calculates that a 25% tariff, or $15 per barrel, on top of the current $62 Western Canadian Select crude price would raise gas prices by an average of 10 cents per gallon.
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Particularly concerning is Canada’s oil: according to the Energy Information Administration, in 2023, the United States bought 4.42 million barrels of oil per day from Canada, accounting for 52% of all U.S. oil imports. At 910,000 barrels per day, Mexico ranks far behind, accounting for 11% of U.S. oil imports.
A recent Dun & Bradstreet analysis of the possible effects of U.S. tariffs on Canada and Mexico found that high tariffs on Canadian imports will “impact all industries directly or industry and trigger inflation pressures, which [are] already a concern for the U.S. economy,” since the U.S. imports most of its oil from Canada.
In particular, Canada provides the United States with “heavy crude oil to refine into products like diesel and jet fuel,” according to Kaya of Neuberger Berman, who spoke to MarketWatch. “Without it, prices at the pump and in supply chains could surge.”
According to Dow Jones Market Data, U.S. benchmark crude futures saw minimal movement at the end of 2024, with West Texas Intermediate oil (CL.1) up just 0.1%. The March contract settled Tuesday at $73.77 a barrel on the New York Mercantile Exchange, marking a 2.9% increase in prices (CLH25) so far this year.
According to GasBuddy, this has helped keep retail gas prices relatively steady. On Tuesday, they were $3.109 per gallon, up roughly 3 cents from a year ago. Because fewer people drive in the winter due to the colder temperatures, demand for fuel tends to decline.
“Because a large portion of U.S. refining infrastructure is configured to process heavy crude, which overwhelmingly comes from Canada, specifically Alberta,” Molchanov explained, U.S. refining corporations have become dependent on Canadian oil supplies. He stated that there is “no way to avoid these imports,” and that the current price of this variety, known as Western Canadian Select, is about $62 per barrel.
Heavy crude, which is more viscous than the light sweet crudes made from American shale, is processed in many refineries in the United States. “Investments were made to ensure U.S. refineries would have access to the feedstocks needed to produce gasoline, diesel, and jet fuel,” according to the trade group American Fuel & Petrochemical Manufacturers, before the U.S. shale boom began in the mid-2000s.
Trump allegedly stated earlier this month that the United States is “probably” going to stop purchasing oil from Venezuela as part of his ongoing efforts to undermine President Nicolás Maduro’s government.
According to Molchanov, Venezuela was a major exporter of heavy crude 20 years ago, but its own government’s poor management has decimated the nation’s oil sector. Accordingly, there is “no alternative to buying heavy crude from Canada,” he continued.
That would go against the Trump administration’s declared goal of bringing down energy prices and limit the supply accessible to refiners in the United States. According to Molchanov, the “optics of this situation would be problematic,”
“Bearing in mind that fuel prices eventually make their way across the entire economy, the inflationary impact would be felt in just about every industry, not just transportation,” he said, adding that drivers would notice higher prices at the pump within weeks.
