Tariffs Impact Products More Than Crude Oil

CRUDE OIL 

March Crude Oil is higher this morning but well off the overnight highs. The tariffs against Canada and Mexico are expected to impact US product prices more than crude oil. The Trump administration announced 25% duties on imports from Canada and Mexico, with an exception for Canadian oil imports, which will face a 10% duty. The tariffs are expected to go into effect tomorrow. Canada and Mexico together account for 25% of crude oil processed in the US. The US imports roughly 4 million barrels per day from Canada, 70% of which is refined in the Midwest. It also imports 450,000 bpd from Mexico, mainly for refiners concentrated around the US Gulf Coast. At this point, Midwest refiners don’t have many other options to source their crude, and Canadian producers don’t have easy access to other markets. Top oil ministers from OPEC+ are scheduled to meet today. Some delegates told Reuters that the group was unlikely to vote to increase production more than already planned, but others said it was too early to say. OPEC+ is currently holding back 5.85 million barrels per day of output, which represents 5.7% of global supply. There is a plan in place to begin unwinding 2.2 million bpd of those cuts in April. The Baker Hughes rig count showed US oil rigs in operation were up 7 rigs to 479 last week. This was the biggest single-week increase since February 10.

NATURAL GAS

March Natural Gas gapped higher overnight as the market reacted to the tariff announcements. The Baker Hughes rig count showed US natural gas rigs in operation were down 1 rig to 98 last week. This was down from 117 rigs a year ago and below the five-year average of 119. The weather forecasts show a return of colder than normal temperatures next week, which could boost US demand. The 6-10-day forecast has below normal temperatures across the northwestern half of the lower 48, and the 8-14 day has below normal temperatures everywhere but the southeast. There is also a large area of significantly below normal temps in the PNW and northern Rockies in the 6-10 day that extends into the northern Plains and northern Midwest in the 8-14 day.

PRODUCT MARKETS

The tariffs announced overnight are likely to have a more direct effect on the product markets as the US gets about 25% of its refinery feedstocks from Canada and Mexico.

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