The impact of the US' planned 10pc tariff on Canadian energy imports is likely to be "relatively muted" with a weaker Canadian dollar helping to cushion the impacts on US dollar-denominated Western Canadian Select crude, according to Canada's largest pure-play oil sands producer today.
"You might see a $2-4/bl widening in the WCS diff, but we're also seeing a weakening in the Canadian dollar at the same time. That's going to offset that," MEG Energy chief financial officer Ryan Kubik told analysts.
The Canadian dollar, on average, was worth C$1.37 to the US dollar in 2024, weakening from C$1.35 to the greenback in 2023 and the weakest since 2003, according to the Bank of Canada. The Canadian dollar has since depreciated further to C$1.43 to the US dollar in February, a benefit to Canadian producers selling crude in US dollars.
Heavy sour Western Canadian Select (WCS) in Alberta was under pressure in early February when tariffs looked likely, but were subsequently postponed to 4 March. WCS trades at a discount to the US light sweet benchmark and this week has been hovering around a $13/bl discount, roughly $2/bl narrower than before the tariff threat nearly one month ago.
US president Donald Trump said he plans to impose a 10pc tariff on energy, and a 25pc tariff on all other imports from Canada, next week. That has caused confusion for the market with little details on how it would work.
Additionally, it is unclear who may bear the brunt of the added tax, but Canadian producers seem likely to share in that cost along with refiners and consumers, to a varying degree.
Kubik discussed the prospect of hedging more volumes at current WCS prices, but said participants are limited by the "very illiquid" nature of the market.
"There's not a lot of appetite to get out there and put a position on because it's just not that meaningful," said Kubik. "And when you consider the impact of tariffs, we actually think it may be relatively muted."
For the moment, most of the volume moving westbound on the 890,000 b/d Trans Mountain system, which enables Canadian producers to bypass the US entirely by exporting to the Pacific Rim, is on existing contracts, according to MEG's senior vice president of marketing Erik Alson.
"I think where you're likely to see spot shipments moving would be more around the time when, if, tariffs come into effect," said Alson. "That's when you'd see the extra incentive to move a significant amount of spot capacity."
MEG is a committed shipper on TMX but also routes crude through the US Gulf coast, and more than half of MEG's sales could be non-tariffed, depending on the details in the executive order.
MEG reported Friday its bitumen output fell to 100,100 b/d in the fourth quarter, down from 109,100 b/d in the fourth quarter of 2023. The Calgary-based company posted a profit of C$106mn ($73mn) in the fourth quarter, up from C$103mn in the fourth quarter of 2023.
