Market concerns about the U.S. imposing tariffs on Canadian crude oil have significantly eased as the threat of higher tariffs continues to face delays. On Monday, the price discount of Western Canadian Select (WCS) crude oil relative to the U.S. West Texas Intermediate (WTI) benchmark narrowed to $11.70 per barrel, the smallest gap since November 15 of last year. This shift in a critical market metric reflects growing confidence that the U.S.-Canada tariff dispute is de-escalating.
U.S. President Donald Trump first floated the idea of tariffs on Canadian imports in November last year while still president-elect. The proposed tariff package, which included a 10% duty on energy imports from Canada and a 25% duty on other Canadian and Mexican goods, was initially set to take effect on February 4 but has since been postponed twice. A recent delay announced last week suggests goods covered by the United States-Mexico-Canada Agreement (USMCA) may receive exemptions.
For years, the U.S. has been the world’s largest producer of oil and gas, but many American refineries rely heavily on Canadian heavy crude imports. According to the U.S. Energy Information Administration (EIA), in December last year, the U.S. imported an average of 6.6 million barrels of crude oil daily, with over 60% coming from Canada.
U.S. Energy Secretary Chris Wright fueled market confidence even further earlier this week, hinting at the possibility of an agreement that would drop tariffs on oil, gas, and other energy imports from Canada. However, analysts have warned that the current price structure no longer reflects any tariff risk, making the market vulnerable to sharp fluctuations should policy directions suddenly change.
In January, when Trump renewed tariff threats, the WCS discount widened to $15.50 per barrel. Since then, as the tariff implementation timeline has repeatedly been extended, the gap has steadily narrowed. Other factors supporting Canadian crude prices include a U.S. executive order temporarily exempting Canadian oil exports via the Gulf Coast from tariffs and expected seasonal maintenance at Canadian oil sands facilities in April, which could reduce production levels.
Analysts also point to stronger U.S. crude oil demand in April compared to March, as well as the Trans Mountain pipeline nearing maximum capacity. This pipeline allows Canadian producers to bypass the U.S. Midwest and ship directly to overseas markets. Together, these factors are expected to help balance the market for Canadian heavy crude.
The ultimate outcome of the North American energy trade dispute will depend on the ongoing tug-of-war between White House policy decisions and market fundamentals. As negotiations continue, the future of energy tariffs remains uncertain, but the market increasingly suggests a resolution could be near.
