Canadian Crude Drops Tariff Discount
The relative price of Canadian heavy oil soared over the past week on bolstered prospects for broader US tariff exemptions, erasing a months-long tariff-driven drag on Canadian prices.
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The most-watched Canadian heavy crude (WCS) differential in Hardisty, AB has been remarkably strong all year despite US tariff threats—but that one measure obscures the real tariff-related discounting that Canadian barrels have faced.
Tariff-related pricing pressure began in earnest in late-2024, following Trump’s initial tariff threats, and grew stronger from mid-January through February; the excess geographic WCS differential rose to nearly $5/bbl.
Following USMCA-compliant exemptions and broader US official chatter regarding potential outright Canadian crude exemptions, Canadian crude pricing has begun to more definitively shed that risk and the excess geographic differential has once again fallen to near-zero.
Western Canadian Select (WCS), Canada’s primary heavy sour crude export blend, is sporting the exceptionally tight differential (vs. WTI) of $10.70 in Hardisty, AB thanks to the combined effects of diminished US tariff concerns and stronger than usual global heavy crude markets. WCS Hardisty differentials have narrowed by more than $3/bbl over the past two weeks and are more than $5/bbl tighter than the recent low-point in late-January.
Canadian crude pricing has recently erased the US tariff-related discounting that had been weighing on the differential over recent months. While the biggest challenge for Canadian oil markets used to be insufficient pipeline capacity, today it is increasingly the threat of US tariffs. That tariff threat has weighed on Canadian crude pricing over the past two months, measured as the excess geographic differential between Hardisty, AB and Houston, TX. The market is now pricing in bolstered prospects for broader and longer-lasting Canadian oil import exemptions—at least for now.
The US imports more than half of its total foreign oil purchases from Canada, so the question of whether those barrels are hit with a 10% tariff is one of material importance for US refineries, US consumers, and Canadian oil producers. With that in mind, let’s dig into the correct way to assess how tariff threats are being reflected in current Canadian crude pricing as well as the latest developments in the potential for tariff exemptions on Canadian oil.