Canadian Oil Sector Hedges Trump Tariff Risk, US Midwest Refineries Could Be Affected

The market eagerly awaits Donald Trump‘s first day in office as U.S. president, as his new tariffs could have a cascading effect on domestic industries as much as foreign nations.

A proposed 25% tariff on Canadian imports poses a considerable risk to the American Midwest, a region heavily reliant on Canadian oil imports.

Despite being the world’s largest oil producer, the U.S. depends on Canada for more than four million barrels of oil daily, much of which goes through Midwest refineries configured for heavier Canadian crude.

This type of oil is closer to heavy oil produced by heavily sanctioned countries like Venezuela or Russia and is different from lighter U.S. shale oil. BP's Whiting refinery in Indiana, which employs 1,800 people, has processed more than 57% of its 450,000 barrels per day capacity from Canadian sources.

"We import a lot of energy from Canada. Taxing that would raise costs and not help American jobs," former Commerce Secretary Wilbur Ross said for CBC News. If tariffs go through, gasoline prices in the Midwest could jump as much as 10%, oil analyst Patrick De Haan estimated per Reuters.

The American Fuel and Petrochemical Manufacturers (AFPM) group cautioned against tariffs, stating they could inflate costs, reduce accessible supplies and provoke retaliatory trade measures, further disrupting U.S. energy markets. Even refineries along the West Coast, better equipped for other crude types, would struggle to replace Canadian oil.

While tariffs would hurt both sides, Canada has been fortifying its position by strengthening its logistical chain. Trans Mountain pipeline expansion, in operation since May, has tripled its capacity to almost 900,000 barrels per day. With a strengthened capacity of up to 630,000 barrels per day reaching the coast of British Columbia, Canada is shielding itself from potential impact.

Thus, investors looking for opportunities in the Canadian oil sector might put the following companies on the watchlist.

Tourmaline Oil Corp TRMLF is the leading Canadian natural gas producer, with a notable crude oil production of over half a million barrels daily. While tariffs threaten natural gas exports, there are seven liquefied natural gas (LNG) and one infrastructure project in development in Canada.

Tourmaline has healthy growth forecasts of 25.5%, boasts a good 34.75% margin, and trades at a reasonable 14.8x P/E ratio. The firm has a low debt-to-equity ratio of 10% and a notable 6.3% dividend.

Hemisphere Energy Corp HMENF is a junior petroleum and natural gas company in southeast Alberta specializing in conventional oil extraction. It has no debt, trades at a minuscule P/E ratio of 6x, and boasts a net profit margin of almost 38%. It pays an outstanding 8.6% dividend, but with a mere $127 million market cap, it is a rather speculative opportunity.

ETF investors can check the Global X Pipelines & Energy Services Index (PPLN), which trades on the Toronto Stock Exchange.

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