Stock Photo: SOMKIET POOMSIRIPAIBOON / Shutterstock
(Bloomberg) —
US President Donald Trump’s trade wars and sanctions are tightening the market for heavy crude, boosting prices for the sludgy oil and raising costs for the largest American refining center.
Heavy Canadian Cold Lake is trading at $4.20 a barrel less than light, sweet West Texas Intermediate in the Gulf Coast market. The discount recently narrowed to as little as $3.75, close to a three-year low.
Trump has been threatening tariffs on Canada and Mexico — two of the largest suppliers of heavy crude to US Gulf Coast refiners — while also ratcheting up sanctions on Venezuela, which produces similar grades. The moves are threatening to restrict the flow of a combined 8.3 million barrels of heavy crude a day, adding tightness to a market that already was straining as the startup of a new pipeline in Canada lets producers there divert some of their output to new customers in Asia.
“We have a distinctive shortage of heavy oils in the market,” said Vikas Dwivedi, global energy strategist for Macquarie Group.
Trump on Thursday exempted Mexican and Canadian goods covered by the North American trade agreement known as USMCA from his tariffs, though the pause will expire April 2.
Global waterborne exports of heavy sour crudes have fallen by 385,000 barrels a day in the past decade amid falling production from Venezuela and Mexico, according to maritime intelligence firm Kpler. Light sweet oil flows soared by 3.3 million barrels a day during that time, in large part due to the US shale revolution. That has created a split in the oil market, with an oversupply of light oils and a supply crunch in heavies.
Refineries on the Gulf Coast, which are designed to process the sludgy crude, took a hit in the middle of last year when Canada’s expanded Trans Mountain pipeline started service, unlocking direct access to markets in Asia. Last year, Canadian exports to Asia via Texas and the west coast port of Vancouver climbed by 25% from a year earlier, to 232,000 barrels a day.
Trump’s administration also has threatened sanctions on Russia and Iran, potentially further curtailing flows. The flurry of restrictions has tightened the market so much that OPEC’s announcement that it’s restoring some production has done little to cool Gulf Coast refiners’ desire to snap up heavy barrels.
The Organization of Petroleum Exporting Countries and its allies are reviving 138,000 barrels of daily oil production in April following more than two years of curtailment. The group plans to restore a total of 2.2 million barrels a day by 2026, and a quicker return of that output would go a long way to alleviating the shortage of heavy crudes, Dwivedi said.
“OPEC could solve the tightness of the heavy oil market with the stroke of a pen,” he said.
© 2025 Bloomberg L.P.
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