When John D Rockefeller started Standard Oil, he started in the refining business. Eventually he did a deal with railways to transport the oil at cheaper rates to his refineries. Finally, his company finished the vertical integration by drilling for oil. To have a less expensive price than railways, Standard Oil built refineries to bring the oil to his refineries. Most people when they think of the oil industry, think of the drilling for oil and the pumpjacks that are in places where they find oil. However, the real issue is the refining of the oil to various products such as gasoline, diesel fuel, jet fuel, chemicals to build plastics, and all the other uses. Much of the how the refinery works depends on the sulphur content and similar to maple syrup how clean the oil is.

In an article by Florence Tan, Siyi Liu, and Robert Harvey of Reuters, if President-elect wishes to impose a 25% tariff on everything coming across the border from Canada and Mexico, he can. If he does there will be options for the oil producers in Canada and Mexico as well as consequences for refineries in the US.

The US accounts for 61% and 56% of crude exports from Canada and Mexico respectively according to ship-tracking data from Kpler.

Canada and Mexico export mainly heavy-sulphur crude that is processed by complex refineries in the US and most of Asia. A large Indiana refinery near Gary. which is south of Chicago recently spent $3.5 billion to upgrade to meet the supply of oil sands oil from Canada. If tariffs were imposed one would expect it to refine less oil.

After the oil is found, it needs to be transported by ship or train or on a pipeline, there are some refineries in the US which only take oil from a pipeline.

In Asia, the refineries are capable of handling the high sulphur oil and LSEG analyst Ann Pham said it would be expected if tariffs are imposed more Mexican and Canadian oil would go to Asia.

In Europe, Spanish refineries could take more Mexican crude, but it is more likely Asia could easily absorb any volumes not sold into the US. Exports of Mexican crude oil to Europe has averaged 191,00 barrels a day with 81% going to Spain. Canadian flows are 85,000 barrels a day.

Linking to dividend paying stocks, oil companies in general are some of the most profitable companies on the planet and have paid dividends for hundreds of years. It is not likely to change anytime soon particularly when the price of crude is expected to stay in the $70 range. If President-elect Trump decides on a 25% tariff across the board, a simple solution will mean complex decisions in the marketplace.

There are more questions than answers, till the next time – to raising questions.