Spot prices for a key U.S. sour crude oil grade surged about 60% on Tuesday, dealers said, in an early sign that President Donald Trump’s tariffs on Canada and Mexico have begun to disrupt global oil trade. Trump’s 10% tariff on Canadian oil and a 25% tariff on imports from Mexico took effect overnight on Tuesday. As the two countries’ combined oil exports represent about a quarter of what U.S. refiners process, the move is expected to force buyers to seek alternate cargoes of heavy grades, or pay higher prices for their typical supplies.
Mars Sour, a U.S. medium sour crude produced along the U.S. Gulf of Mexico, traded intraday at a $3.60 per barrel premium to U.S. crude futures, brokers said, versus a $2.25 per barrel premium on Monday.
The grade eased later in the session to trade at a $2.75 per barrel premium.
Mars is an attractive alternative to grades such as Isthmus, a sour crude produced in Mexico, leading to its increased price, a trader said. Crude grades have different properties and uses depending on their density and sulfur content. Based on the complexity of their infrastructure, some refineries globally are best configured to take in certain grades, making matching alternatives a significant part of the equation when trading crude. In Canada, grades were pressured in the lead up to tariffs. The discount of Western Canada Select heavy crude to U.S. crude futures widened on Monday to $13.60 a barrel.
In Latin America, one trader said dealers there were “praying for another pause in tariffs implementation,” adding that prices were mostly stable as cargoes of Latin America’s most popular grades for April delivery were sold out.
Trump’s administration also ordered on Tuesday the end of a key license for Chevron to operate and export oil for Venezuela, which is expected to reduce even further the pool of available heavy grades for U.S. refiners. “The real discount, like the real tariffs’ effect, has already been creeping in slowly and steadily for a while,” said Rory Johnston, Toronto-based energy analyst and founder of the Commodity Context newsletter. “Now the question moves to how long it lasts and where we go from here.”
Some of the volatility on Tuesday was panic-buying, another trader said, as the market until now had been waiting to see whether Trump would move forward with the tariffs.
“The shoe is dropping now and traders are now pricing in the tariffs,” a fourth trader said. In December, the United States imported nearly 6.6 million barrels per day of oil, Energy Information Administration data showed. Canada sent 4.2 million bpd, while Mexico sent 451,000 bpd.
(Reporting by Stephanie Kelly, Arathy Somasekhar, Georgina McCartney, Marianna Parraga and Amanda Stephenson; Editing by Nia Williams)