Like so many other commodities, the potential tariff impact is an overhang on where the price of gasoline is heading. Let’s dig into this a bit more.
Background
At its core, gasoline prices are driven by supply and demand: What goes into the price you pay for gasoline?
· The cost to locate and get crude oil out of the ground
· The cost to change crude oil into gasoline
· The cost to transport it to end destinations
· The cost to operate the local station (retail margin), and
· Taxes to provincial, federal, and sometimes municipal, governments.
The price of crude accounts for up to 70% of the overall price of gasoline.
What’s been happening recently?
Oil prices are near a three-year low with fears of a weaker global economy re-enforced by President Donald Trump’s trade policies. In addition, OPEC+ members have agreed to start reversing the previous 2.2 million barrels per day (b/d) cut they initiated in November of 2023 by adding back 138,000 barrels per day each month starting in April until September 2026. A number of agencies now expect WTI crude prices will average in the US$65 a barrel range this year, falling further to $60 a barrel in 2026.
Tariff impact on the price of gasoline
In the United States, tariffs will increase the cost of imported crude oil from Canada and Mexico, leading to higher expenses for refiners there. Those increased costs will be passed on to consumers in the form of higher gasoline prices. In the Midwest (PADD 2 and PADD 4 - Petroleum Administration for Defense Districts), Canadian crude made up 100 per cent of the 3.2 million b/d of imports in 2024, accounting for 72 per cent of the region’s 4.5 million b/d of refinery crude runs. Areas heavily reliant on Canadian crude, such as the Midwest and Northeast, could experience price increases of 20 to 40 cents per gallon of gasoline due to the tariffs. Interestingly, Midwest refining margins are consistently amongst the highest in the world, averaging $21.80/bbl since 2021. The region has invested billions in specialized equipment like cokers and hydrocrackers to break down our heavier oils, making switching slow at best.
Gasoline production and distribution in Canada
There are 14 gasoline-producing refineries in Canada with seven in Western Canada, three in Ontario, two in Quebec, and two in the Atlantic Provinces with a total capacity of 1.9 million barrels per day. The Irving Oil Refinery in Saint John, New Brunswick, is Canada’s largest refinery, with a capacity of 320 thousand barrels per day (Mb/d). The western refineries use domestic oil from the Western Canadian Sedimentary Basin (WCSB) and the eastern refineries rely more on imported oil. Gasoline is distributed from the refineries to a network of terminal locations across Canada that ensure adequate distribution locations to local gas stations. Of interest, fuel that is sent by ship rather than pipeline has the option to be re-directed elsewhere reasonably quickly as well.
This chart shows the price of gasoline over the last 25 years in the US with recessions highlighted in grey.
Canadian Impacts
While the U.S. tariffs will impact the American market, their indirect effects on Canadian gasoline prices are uncertain and depend on changes in domestic supply and demand, currency fluctuations, and the ability to access alternative export markets. In the short term, Canadian consumers may not experience significant changes in gasoline prices directly attributable to these tariffs and may actually see a supply/demand shift causing domestic prices to fall somewhat.
Carbon Tax Update
Mark Carney was declared as the new leader of the Liberal Party of Canada yesterday (March 9, 2025) thereby becoming Prime Minister-designate as well. During his acceptance speech he re-iterated that he would immediately eliminate the “divisive carbon tax.” The carbon tax currently costs consumers about 17.6 cents per litre of gasoline and is planned to rise to 21 cents per litre April 1st. By 2030, the carbon tax is expected to cost 37.4 cents per litre of gasoline. The federal government also imposed a second carbon tax through fuel regulations that will add up to 17 cents per litre of gasoline in 2030, according to the Parliamentary Budget Officer. Altogether, Canadians would pay up to 54.4 cents per litre of gasoline in carbon taxes alone by 2030.
What this all tells us is in the short to medium term we can expect to see higher gasoline prices in the Northern and Mid-Western United States and flat to possibly lower prices for Canada, especially if the carbon tax is repealed.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.