How Tariffs Will Impact Crude Oil Prices and What This Means for Consumers

April 15, 2025

Written by Steven Eilders, CPA, BMSS Manager

Gas prices are a hot topic in the news right now – but many consumers find themselves overwhelmed by all of the changing policies and headlines. What, exactly, do all of these changes mean for the everyday consumer? Keep reading for key background information and insights into the current state of the oil & gas industry.

Reasons for Changes in Oil Prices

The main driver of global oil prices is the Organization of Petroleum Exporting Countries (OPEC) which was established in 1960 by Iraq, Iran, Saudi Arabia, and Venezuela as well as OPEC+, which includes additional oil-producing countries outside of the core organization. The industry generally expects oil prices to decline this year as compared to 2024 due to OPEC+’s plan to increase the production quota of crude oil starting in April – meaning supply will likely outweigh demand – in part, due to the belief that China’s oil demand has peaked, as they have been the driver behind incremental global demand for the past two decades. This will be the first real increase in the crude oil production quota from OPEC since 2022.

Going back to Economics 101, more supply and less demand should lead to falling prices. On January 15 of this year, oil prices were around $78 per barrel, whereas by the end of February, the price had dropped to around $69 per barrel. If prices continue to drop, OPEC and OPEC+ might amend their plans to increase the production quota, which would ensure oil prices increase as the supply decreases. As of March 23, Reuters reported that OPEC+ still plans to boost output starting in April.  This increase will be 138,000 barrels per day in April and 135,000 barrels per day in May, according to Reuters’ calculations. OPEC+ is attempting to raise output for members that have followed output parameters in the past while also trying to rein in members that have defied those parameters. OPEC+ does stipulate that this increase can be paused or ultimately cancelled depending on current market conditions, which allows the group some flexibility to continue to support oil market stability.

These increased quotas may cause problems for the Midwestern refineries and Northeastern consumers, because Canadian crude (around 60% of U.S. crude oil imports) is heavier than most U.S. crude, which is very light. The refineries in the Gulf Coast region (New Mexico, Texas, Arkansas, Louisiana, Mississippi and Alabama) are able to refine the lighter crude oil more easily because they have already spent the capital on the equipment and processes in order to do so, whereas Midwestern refineries would have to spend more capital in order to retrofit the refineries to be able to run the lighter crude compared to the Canadian crude they typically use.

The U.S. is the world’s largest producer of oil – so why do refineries need to import oil in the first place? One of the reasons is the cost of capital, previously mentioned, along with the refineries’ need to use heavier crude oil to maximize their flexibility of gasoline, diesel and jet fuel production.

The current tariffs on Canadian energy (crude oil and fuels) are only 10%, so the news of OPEC+’s quota increase overshadows the increased tariffs on Canadian crude due to the U.S. discount from the West Texas Intermediate (WTI) price, a benchmark for oil produced in the United States. That price is based on oil in Cushing, Oklahoma (a major hub for oil storage, pipelines, and trading) and is refined in the Midwest and Gulf Coast regions of the United States. This is the measure most people use to understand where crude oil prices are in the United States.

On March 24, President Trump also issued an order for a 25% tariff on any nation purchasing oil and gas from Venezuela. So far, this has caused oil prices to rise by about 1.2%, but it should not have a huge effect on global crude oil prices due to the increased supply from OPEC+; however, this tariff will influence specific companies. Chevron is the only U.S. oil company that is operating in Venezuela due to a waiver granted despite the sanctions issued by the U.S. Treasury. The U.S. Treasury on Monday, March 24, granted Chevron until May 27 to stop operations in Venezuela. There are many U.S. refineries that rely on Venezuelan imports, but the 25% tariff will not affect sales to the U.S., which should help keep the flow of crude that some U.S. refineries depend on to stay relatively the same.

How does this affect consumers?

What you see at the gas pump will depend on where you live within the United States. People in the Northeastern part of the country will most likely see an increase in gas prices as Canadian refineries have said they will not cover the cost of the 10% tariffs. Since the Northeastern refineries are built to handle heavier crude oil, they don’t have much of an alternative to paying the tariffs.

Some analysts believe that 90% of Canadian crude will continue to flow into the U.S., which will cause the gas prices in that region to slightly increase as the tariffs go into place. The southern part of the country that relies more on Mexican crude (which will have a 25% tariff added) may not see as much of an effect at the gas pump due to the fact that the refineries along the Gulf Coast can rely on lighter crude oil as an alternative and, therefore, have more flexibility. Analysts predict a sharp decline in Mexican crude oil imports, which will help keep gas prices lower in the southern part of the United States. It is important to note, however, that the process of moving to an alternative supply could also cause disruptions and an increase in transportation costs.  

The Bottom Line

The U.S. oil market – despite being the largest producer in the world – is still very dependent upon Canada, Mexico and Venezuela for crude oil imports, which means our new tariffs affect the market. Some of these consequences will be immediate, while others will happen over time. The oil and gas industry is very adept at adjusting to shifts in the market related to global and U.S. political policies. The prices of oil around the world depend on what OPEC and OPEC+ decide in terms of output which will affect the global price of oil. Locally, the U.S. market is dependent on what refineries in the region can do to find alternatives and move away from Canadian and Mexican imports, which will cause higher gas prices in some areas of the country.