US tariffs on imports from Canada, Mexico delayed by one month

The US has delayed tariffs on Mexico and Canada -- both major suppliers of crude to the US -- for one month as the two countries have promised to boost efforts to reduce the flow of fentanyl and illegal immigration to the US.

"Canada is implementing our $1.3 billion border plan — reinforcing the border with new choppers, technology and personnel, enhanced coordination with our American partners, and increased resources to stop the flow of fentanyl. Nearly 10,000 frontline personnel are and will be working on protecting the border," said Canadian Prime Minister Justin Trudeau on X following a meeting with US President Donald Trump.

"In addition, Canada is making new commitments to appoint a Fentanyl Czar, we will list cartels as terrorists, ensure 24/7 eyes on the border, launch a Canada-U.S. Joint Strike Force to combat organized crime, fentanyl and money laundering. I have also signed a new intelligence directive on organized crime and fentanyl and we will be backing it with $200 million," Trudeau said.

Trudeau's comments followed a similar deal between the US and Mexico announced by Mexican President Claudia Sheinbaum in the morning.

The decision comes after Sheinbaum and her team had a telephone conversation with Trump early Feb. 3, Sheinbaum said during her daily press conference.

"It was a very long conversation; I think it was a good deal," Sheinbaum said, adding that both countries are now working on three areas: migration, security and commerce.

In her account in X, Sheinbaum said the teams would start working together Feb. 3.

Trump said on Truth Social Feb. 3 that Sheinbaum "agreed to immediately supply 10,000 Mexican Soldiers on the Border separating Mexico and the United States. These soldiers will be specifically designated to stop the flow of fentanyl, and illegal migrants into our Country."

Trump said negotiations between the US and Mexico will be led by "Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick, and high-level Representatives of Mexico."

The White House said Feb. 1 the US would impose a 25% tariff on all imports from Mexico, a 10% tariff on energy imports from Canada and a 25% tariff on non-energy imports from Canada effective Feb. 4.

The US will also impose an additional 10% tariff on imports from China. China's petroleum industry expects Beijing to be cautious about imposing countermeasures on energy imports from the US while monitoring the market to capture opportunities to bring in more Canadian and Mexican crudes at competitive prices, multiple sources said Feb. 3.

Mexico is a regular supplier of crude to US refiners, primarily in the USGC. The USGC imported 453,000 b/d of crude from Mexico in November, according to the EIA. However, in contrast to Canada, exports to the US have been declining because of lower Mexican output and because Mexico has been shipping more barrels to Europe.

According to analysts from S&P Global Commodity Insights, Mexico could place tariffs on oil product imports from the US. That would be bullish for European gasoline prices as Mexico would turn to European refiners for supply.

The tariffs on imports from Canada could also be bullish for European gasoline prices, as Canada not only supplies crude to US refiners but refined products to markets on the US Atlantic Coast. The US imported 625,000 b/d of products from Canada in November, according to the EIA.

While crude futures settled slightly higher Feb. 3, refined products crack spreads rallied. The NYMEX RBOB crack spread against WTI rallied $1.84 to settle at $15.78/b, while the NYMEX ULSD crack against WTI settled up $2.13 at $30.29/b.

However, following Trudeau's announcement on X, crude futures and crack spreads eased.

The lower 10% tariff on energy imports from Canada was likely due to US refiners' reliance on Canadian barrels.

US imports of Canadian crude averaged 4 million b/d in October, with 2.7 million b/d of that going to Midwest refiners, according to the most recent monthly data from the US Energy Information Administration. The US West Coast imported 423,000 b/d in October, the US Gulf Coast imported 497,000 b/d, the Rockies imported 248,000 b/d, and the US Atlantic Coast imported 105,000 b/d.

WCS rebounds following Trudeau announcement

Canadian oil producers were expected to shoulder most of the tariff because they have limited ability to export elsewhere and will be competing at the margin with medium-heavy barrels on the Gulf Coast.

Western Canadian Select was assessed by Platts at a $15.50/b discount to WTI Feb. 3, down $1.65 on the day and down from an $11.55/b discount on Jan. 6.

However, following the Trudeau announcement, the WCS discount tightened, trading at a $13.75/b discount to WTI.

Still, the Canadian crude spot market was sluggish Feb. 3 as traders awaited more details from a planned meeting between Trump and Canadian Prime Minister Justin Trudeau.

Coastal markets would have an easier time replacing Canadian crude via waterborne imports. However, Midwest refiners would have a difficult time importing heavy crudes because of a lack of pipeline capacity from the USGC.

Enbridge's 212,000 b/d North Dakota pipeline carries light sweet crude from the Bakken to Clearbrook, Minnesota, according to the EIA. Energy Transfer Partners' Dakota Access pipeline, with a capacity of 750,000 b/d, can carry the same Bakken crude to Patoka, Illinois. Energy Transfer Partners also operates the 280,000 b/d Mid-Valley Pipeline from Longview, Texas to Samaria, Michigan.

Several pipelines originating in Wyoming and Colorado — the Basin Pipeline, the Platte Pipeline, the Pony Express Pipeline and the DJ Basin — also carry crude to the large storage facility in Cushing, Oklahoma, which could route crude to the Midwest.

However, those lines would move US-produced light sweet crude, which is not optimal for Midwest refineries tooled with coking units designed to process Canadian heavies.