North Asian refiners see tie-ups with Mexican, Canadian oil suppliers post-US tariffs

South Korean and Japanese refiners are aiming to procure more Mexican and Canadian crude at attractive prices, as suppliers of Maya, Isthmus, Access Western Blend and Cold Lake crudes may have to grow reliance on Northeast Asian buyers if exports to the US become difficult or unprofitable.

Washington's decision to impose a 25% tariff on all imports from Mexico and a 10% tariff on energy imports from Canada could slow and somewhat disrupt the crude oil trade flows within the North American markets. Ultimately, Mexican and Canadian crude suppliers could turn to Asian outlets as a remedy, possibly presenting good opportunities for some Asian refiners to pick up lots of North American sour crude cargoes at good discounts, according to refinery feedstock managers based in Seoul and Tokyo.

Asian buyers and traders are willing to negotiate good deals with Mexican and Canadian suppliers. Regarding crude oil, every supplier worldwide knows Asia is the major demand center, said feedstock management sources at South Korean and Japanese refiners and a market analyst at a Singapore-based integrated Japanese trading company.

"It could be interesting to see how Mexican and Canadian [crude] suppliers react [to recent tariffs], and I expect them to make more good offers in the Far Eastern market as they may have to rely more on Asian buyers this year," a feedstock manager at a major South Korean refiner said.

South Korea—Asia's third biggest crude importer—has consistently received one to two VLCCs/month of sour crude from Mexico over the past decade. Mexico was South Korea's seventh-largest crude supplier in 2024, with local refiners, including SK Innovation and Hyundai Oilbank, collectively buying 26.5 million barrels of light and heavy sour grades from Pemex last year, the latest data from state-run Korea National Oil Corp. showed.

South Korea's major refiners operate highly sophisticated refining facilities, and they are more than capable of efficiently cracking some of the heaviest-density crude grades, such as Mexican Maya crude.

Feedstock cost is a crucial factor in the overall refining margin mechanism, and we are willing to consider significantly raising Mexican and Canadian crude procurement if the suppliers approach Asian market participants with attractive offers to diversify their sales outlets, an official at a major South Korean refiner told S&P Global Commodity Insights.

The official selling price spread between Maya crude and Saudi Arabia's Arab Heavy crude has consistently remained at a steep discount, a clear indication that Asian refiners equipped with highly advanced fluid catalytic crackers and hydrocracking units could yield much better margins processing the Mexican crude than the Persian Gulf crude.

Earlier this month, Pemex set the OSP differential, or K factor, of Maya crude for loading in February and bound for Asia at minus $8.10/b to the Oman/Dubai average, while Saudi Aramco raised the Asia-bound February OSP differentials for its Arab Heavy crude by 40 cents/b month over month to minus 50 cents/b to the Oman/Dubai average.

This effectively puts the Maya OSP differential for February at a whopping $7.60/b discount against the Arab Heavy OSP differential for the same loading month.

Japan's chance to diversify

In 2024, Japan relied heavily on Middle Eastern crude suppliers, and Asia's fourth biggest crude importer should diversify supply sources by exploring more spot purchase opportunities in the Americas, according to traders and feedstock managers at Japanese refiners.

Japan took 2.213 million b/d from Middle Eastern suppliers in 2024, making up 95.4% of the total annual crude imports, the latest data from the Ministry of Economy, Trade and Industry showed.

Excessive dependence on Middle Eastern suppliers negatively impacts refining margins and economics. The North American market has been a viable alternative supply option over the past several years, feedstock managers at two major Japanese refiners, including ENEOS, told Commodity Insights previously.

In November, President and CEO of ENEOS Tomohide Miyata said the country's top refiner is open to purchasing Canadian crude alongside US and South American barrels, should it prove economical.

"We intend to actively diversify our crude oil supply sources, including Canadian crude, while keeping Middle Eastern crude oil as the basis. We will take into account procurement stability, compatibility with crude oil refining facilities, and, of course, feasibility," an ENEOS spokesperson said.

"Aside from the Middle East, we are also procuring crude oil mainly from the US, as well as Central and South America," said the spokesperson, declining to elaborate on specific trades.

Meanwhile, a trading source at Cosmo Oil indicated that Mexican light and heavy sour crudes are familiar feedstock grades for the company, and its 86,000 b/d Yokkaichi refinery has a history of regularly cracking Mexican light sour Isthmus crude and heavy sour Maya crude.

A market analyst from a Singapore-based Japanese trading company said the tariffs could create obstacles for Canadian and Mexican crude sales to the US, while Japanese refiners might find opportunities to benefit from this situation.

"As a trading firm, when [Asian side] demand is ripe and [Canadian and Mexican] supply is plentiful, we can play a significant role in the middle," the analyst at the Japanese trading house said.