The tariff policy that took effect in the United States on March 4th is reshaping the North American energy landscape. The imposition of a 10% tariff on Canadian energy products and a 25% tariff on Mexican crude oil has not only provoked strong reactions from both countries, but has also caused "pain" in the US refining industry, which is deeply embedded in the regional supply chain. The butterfly effect of this tariff game is spreading from Houston refineries to gas stations across the United States, and even affecting the global energy market.

Canadian Crude Oil: 27% of Imports May Face Tariffs

Data from the US Energy Information Administration (EIA) shows that Canada sends 4.4 million barrels of crude oil to the US daily, equivalent to 27% of the total demand of the US refining system. Canadian heavy sour crude oil is an important profit source for refining companies in the US Midwest, which have invested billions of dollars in upgrading equipment to specifically process this high-sulfur, high-viscosity crude oil.

A Marathon Petroleum spokesperson said: "An extra $10 per barrel in tariffs directly eats away at 5% of profits." Industry analysts point out that although 90% of Canadian crude oil will still flow into the United States, refiners will be forced to make a choice: either pass on the cost and push up gasoline prices, or find alternative crude oil sources and bear higher logistics and processing costs, or cut production and wait for market adjustments.

It is noteworthy that the expansion plan of the Caribbean pipeline has suddenly stalled, indicating that some companies have begun to develop contingency plans. The pipeline was originally designed to transport Canadian crude oil around the east coast to supply New York refineries, but the 10% tariff has made its economic viability questionable. An executive at a New York refinery revealed: "We are evaluating the possibility of importing North Sea crude oil from Norway, which would increase transportation costs by $4 to $5 per barrel."

Mexican Crude Oil: 25% Tariff May Lead to Significant Drop in Imports

Compared to Canada, Mexico's crude oil will be more severely impacted. Last year, the US imported 625,000 barrels/day of crude oil from Mexico, with nearly 80% going to refineries on the Gulf Coast. Mexican Maya crude oil is a heavy oil with a sulfur content of less than 0.5%, making it the best raw material for producing diesel and aviation fuel. A 25% tariff is equivalent to a sudden increase of $7.5 per barrel in crude oil costs, directly breaking the existing profit model.

The manager of Phillips 66's Gulf Coast refinery said, "Alternatives to Maya crude oil need to be transported from thousands of miles away in Venezuela or the Middle East, and transportation costs may double, and the refining equipment needs to be readjusted." According to Rystad Energy, a Norwegian energy consulting firm, Mexico's market share in the US may decline by 40% in the next year, with light crude oil from Brazil's Campos Basin filling the gap. However, this will lead to a decrease in US diesel yield, indirectly pushing up heating oil prices.

The more far-reaching impact is reflected in the geopolitical arena. Mexican President Claudia Sheinbaum Pardo announced that she is considering imposing retaliatory tariffs on gasoline exports to the United States, which could lead to a double blow to the US Southeast market—having to digest the increased gasoline production from domestic refineries while also dealing with rising import costs.

Industry Chain Shock: From Refineries to Farmers

The chain reaction triggered by tariffs is penetrating the entire US economic chain. The American Fuel & Ethanol Association recently warned that the cost of producing corn ethanol will increase by 15% due to rising diesel prices, directly increasing the amount of corn needed to produce each gallon of ethanol. Based on the current US daily consumption of 160 million gallons of ethanol, the cost of corn purchases alone will increase by $230 million per month. Maria Gomez, executive director of the American Fuel & Ethanol Association, said, "We have to ask Congress to extend the tax credit policy, otherwise 15% of production capacity will be forced to be idle in the second half of the year."

The calculations of the American Agricultural Transportation Coalition are even more severe: assuming that the cost of fuel per gallon increases by $1, the cost of agricultural product transportation across the US will increase by $120 million per week. John Holt, an apple exporter from Michigan, said, "The weekly fuel expenditure of the cold chain fleet has risen from $28,000 to $35,000, and we have had to postpone delivery to European customers, with penalties of up to $5,000 per day." According to the US Department of Agriculture, the cost of agricultural logistics accounted for 12.7% of the total value of agricultural products in 2023. If fuel prices continue to rise, this proportion may exceed 15% this year.

Panic has emerged in the capital market. Since March 4, the energy sector of the S&P 500 index has fallen by 7.3%, while the WTI futures holdings have decreased sharply by 12%. Goldman Sachs' commodity analysts pointed out, "Investors are avoiding the risk of policy uncertainty. It is worth noting that the default rate on US refined oil export contracts has risen from 2% to 5%, and Mexican and Canadian buyers are renegotiating pricing terms." According to the US Department of Commerce, the US exported $8.7 billion worth of refined oil to Mexico and $7.6 billion to Canada in 2023, and the potential losses are evident.

Industry Transformation Pain: Green Transformation May Not Offset Risk

There are opportunities within the crisis. Some refining companies are accelerating their deployment of hydrogen energy and carbon capture technologies in an attempt to enhance their competitiveness through low-carbon transformation. ExxonMobil announced that it will invest $2 billion in building carbon sequestration facilities in Texas. The company's CEO, Woodlen, said, "The project can sequester 4 million tons of carbon dioxide per year, equivalent to offsetting the annual emissions of 700,000 gasoline vehicles." But the reality remains grim. Data from the American Petroleum Refiners Association (AAPA) shows that the entire industry needs $90 billion in investment to achieve its emission reduction goals by 2030, while the current average daily profit is only $4.2 per barrel.

Bill Johnson, head of the American Petroleum Institute (API), said, "It's like asking bakeries to invest in fully automated production lines while losing money." In contrast, European counterparts have received policy benefits through the Carbon Border Adjustment Mechanism (CBAM). Shell earned €1.27 billion (approximately RMB 9.969 billion) last year from selling carbon emission allowances, while US refining companies have not yet established a similar carbon pricing system. Even more serious is that, according to US Department of Energy data, 75% of existing carbon capture facilities have operating costs exceeding $50 per ton of carbon dioxide, far higher than the EU market Price.

The Price of Energy Independence

As the Trump administration attempted to reshape the North American energy order with tariff weapons, the US refining industry is undergoing an unprecedented test. The "rigid demand" for Canadian crude oil contrasts sharply with the "elastic substitution" of the Mexican market, revealing the fragility of regional energy integration. Ultimately, consumers will pay the Price for this political game. The US Energy Information Administration predicts that the average gasoline Price in the US may exceed $4.5 per gallon in the summer of 2025, an 18% increase from the same period last year, meaning that each American household will pay an extra $75 in fuel costs per month.

Historical experience shows that trade barriers often lead to distorted markets. In the 1980s, the United States imposed tariffs on Japanese cars, resulting in a loss of innovation and a decline in market share for the domestic auto industry. Similar experiments in the energy sector today may once again verify the irreversible laws of globalization. On the eve of the clean energy revolution, this tariff storm may be sounding an alarm for the North American energy industry: true energy security can never be achieved through unilateral sanctions.

Global Fuel Supply Sounds the Alarm

In 2024, two refineries in Houston and Los Angeles, USA, closed down successively, reducing daily fuel production capacity by 400,000 barrels, equivalent to 12% of the world's daily aviation fuel consumption. The U.S. Energy Information Administration (EIA) warned that global fuel inventories may fall to their lowest level since 2000 in 2025.

Deep Restructuring of the US Refining Landscape

2024 was a watershed year for the US refining industry. The LyondellBasell Houston refinery, which was closed, was once an important fuel supply hub on the Gulf Coast, with a capacity of 263,000 barrels per day, accounting for 4% of the nation's diesel production. The closure of the Phillips 66 Los Angeles refinery directly resulted in California losing 13% of its gasoline supply capacity. Data from the U.S. Energy Information Administration shows that the exit of these two refineries will force the US refining capacity utilization rate to increase to 93%, nearing its historical limit.

Transformation pressures are reshaping the industry. Chevron's biodiesel production line at its Richmond refinery in California has been put into operation, with the state government providing a $1.5 subsidy per gallon of biodiesel, making the product's gross profit three times that of traditional diesel. However, the cost of transformation is high: seven small refineries across the US have closed down due to their inability to bear the cost of transformation, involving a capacity of 150,000 barrels per day.

Regional shortages are beginning to appear. Diesel inventories at the Port of Los Angeles plummeted 45% within ten days of the refinery closures, prompting the California Energy Commission to initiate emergency reserve releases. As of November 2024, gasoline inventories on the US West Coast fell to 24 million barrels, the lowest level since 1999, causing the retail Price of 87 octane gasoline to exceed $5.2 per gallon, up 28% from the beginning of the year.

The Global Supply-Demand Gap Continues to Widen

Diesel and aviation fuel have become the weakest links in the supply chain. Statistics from the European Petroleum Industry Association show that 60% of the refining capacity closed down in the EU in 2024 was concentrated in diesel production units. After the German Miro refinery shut down its 170,000 barrels per day capacity, diesel inventories in the Port of Rotterdam have been below the safety line for 42 consecutive days, with the futures Price premium widening to $12 per ton, a new high since 2008.

The aviation industry's recovery has exceeded expectations, exacerbating the tight supply situation. Data from the International Air Transport Association shows that global flight volume exceeded 39 million in 2024, an 8% increase compared to 2019. The transatlantic route consumes an average of 980,000 barrels of aviation fuel per day, a 12% increase compared to the pre-pandemic period. The spot Price of aviation fuel at Singapore Changi Airport exceeded $130 per barrel in December 2024, forcing Thai Airways International to cut 10% of its short-haul flights.

New capacity in Asia is insufficient to offset the structural gap. Although the Sinopec Zhenhai Refining & Chemical Integrated Project Phase III brought an additional 240,000 barrels per day of capacity, an unexpected overhaul at the Dumai refinery in Indonesia caused a supply disruption of 300,000 barrels per day. Singapore's diesel inventories fell to 8.35 million barrels, the lowest level since 2016, prompting countries such as Malaysia and Vietnam to impose restrictions on fuel exports.

Transportation bottlenecks are driving up regional Price differences. After the Suez Canal toll increased by 30%, the cost of diesel transportation from the Middle East to Europe surged by 65%. Due to insufficient refining capacity, Brazil's diesel imports soared to 550,000 barrels per day, 40% of which needs to be transported from the US Gulf Coast via the Panama Canal, increasing the landed cost by $4.7 per barrel.

Multidimensional Game Between Policy and Market

The EU Carbon Border Adjustment Mechanism (CBAM) increased refining carbon emission costs by $8-12 per ton, causing the Italian ISAB refinery to shut down 320,000 barrels per day of capacity. California's requirement to stop selling gasoline cars by 2035 has led to a 37% reduction in the state's refining capacity compared to 2020, and Chevron has laid off 1,200 refining jobs in the area.

The US Strategic Petroleum Reserve has fallen to 358 million barrels, reaching its lowest level since 1984. The Department of Energy suspended its plan to release 26 million barrels of strategic petroleum reserves in 2024 and urgently signed strategic petroleum reserve swap agreements with South Korea and India to maintain relative stability in energy supply.

The global refining industry is caught in a vicious cycle of "dare not build, unwilling to invest." Phillips 66 has postponed a 450,000 barrels per day refinery project in Texas, and Bharat Petroleum Corporation Limited has shelved a $1.379 billion expansion plan. In 2024, only 11 new refinery projects were launched globally, a 58% decrease compared to 2022, and these were concentrated in the Middle East and India.

The frequency of attacks by Houthi rebels in Yemen on oil tankers in the Red Sea has increased. In December 2024, seven fuel tankers diverted to the Cape of Good Hope, extending the Asia-Europe route transport cycle by 10-14 days.

This crisis is essentially a manifestation of the pain of energy transition. As gas stations in California queue up, European truck drivers protest fuel Prices, and Asian airlines cut flight frequency, the world is paying the real cost for the ambition of phasing out fossil fuels. The ebb and flow of refining capacity is not just about fuel tanks and engines, but also a difficult choice for the logic of modern civilization.

(Gu Yuesheng)

Shadow of "Trump Recession" Looms, US Stocks Stage "Black Monday"

This newspaper reports that due to a significant rise in concerns about the US economic outlook, the US stock market staged another "Black Monday" on March 10, with the three major stock indexes in New York all falling sharply. The concept of a "Trump recession," recently raised by some economists, is being frequently used by international mainstream media and market investors.

No important economic data were released on March 10, but due to persistent market concerns about a US recession, major indexes fell sharply during the session. By the close, the Dow Jones Industrial Average fell 890.01 points from the previous trading day, a drop of 2.08%; the S&P 500 fell 155.64 points, a drop of 2.7%, down 8.7% from its all-time high on February 19; and the Nasdaq Composite fell 727.9 points, a drop of 4%, down nearly 14% from its all-time high on December 16 last year. The Chicago Board Options Exchange Volatility Index (also known as the "fear index"), which measures investor fear and market risk, rose sharply by 19.21% on March 10.

Sam Stovall, chief investment strategist at a financial research and analysis firm responsible for US stock strategy, said the current market correction is a reaction to unilateral policies such as US tariffs. Goldman Sachs said the risk of a US recession has risen from 14% in January to 23% currently.

In addition, concerns among US consumers are growing that policies such as additional tariffs are driving up inflation and worsening household finances. Data from the New York Federal Reserve's consumer expectations survey for February, released March 10, show that consumer expectations for inflation a year from now increased by 0.1 percentage points to 3.1%; expectations for a worsening of household finances in the coming year rose to 27.4%, the highest level since November 2023.

Stephen Juneau and other economists at Bank of America Global Research stated in a research report that the longer inflation remains above the Federal Reserve's target, the greater the probability that inflation expectations will become unanchored. If this happens, it will be more difficult for the Fed to stabilize prices. (Li Qianrui)

US Tariff Policy Timeline

• January 31

The US announced a 25% tariff on goods imported from Canada and Mexico, but only a 10% tariff on Canadian energy products.

• February 28

Trump made it clear that tariffs on Canada and Mexico would take effect on March 4, at a rate of 25%.

• March 4

The US officially imposed a 25% tariff on Canadian goods, while maintaining a 10% tariff on energy products.

• March 5

Trump announced a one-month exemption from the 25% tariff on Canadian automotive products.

• March 6

Trump signed an executive order temporarily exempting goods that meet the requirements of the USMCA from tariffs until April 2, covering 38% of Canadian goods.

• March 11

Trump announced that tariffs on Canadian steel and aluminum would be doubled from 25% to 50%, starting March 12. Subsequently, White House trade advisor Navarro stated that a 50% tariff on Canadian steel and aluminum would not be imposed on the 12th.