Impact of U.S. Tariffs on Canadian Energy Stocks

Scotiabank Global Equity Research is forecasting that U.S. President Donald Trump’s 10 percent tariff on energy imports from Canada, effective February 4, may not last due to the burden of higher energy costs on American consumers. For savvy investors, this presents an opportunity to acquire select oil and gas stocks at reduced prices.

Recently, Trump announced a sweeping 25 percent import tariff on Canadian goods, excluding energy products, which will attract a 10 percent levy. In response, Canada has prepared its own measures, including a 25 percent tariff on various American goods starting Tuesday, further escalating trade tensions.

The iShares S&P/TSX Capped Energy Index ETF (XEG.TO), which represents a grouping of Canada’s largest oil and gas entities, showed minimal movement at the start of Monday’s trading session amidst these ongoing trade disputes.

According to a social media update from President Trump, he and Prime Minister Justin Trudeau discussed the situation on Monday. Analysts at Scotiabank, led by Jason Bouvier, anticipate that the U.S. tariff on Canadian energy will compel producers to intensify exports to markets outside the United States through channels such as the newly extended Trans Mountain pipeline and re-exports from Gulf Coast markets.

However, most of Canada’s oil exports are still destined for the U.S. market. The analysts expect Canadian producers to absorb part of the tariff costs by lowering their realized prices, impacting overall profitability.

As per their analysis, with the 2025 strip pricing for West Texas Intermediate crude oil hovering around US$71.50 and the Western Canadian Select crude discounting at US$15 per barrel, Scotiabank estimates that the effective tariff on Canadian oil will roughly translate to about US$5.60 per barrel.

Sector Vulnerabilities and Opportunities

Scotiabank identifies that exploration, development, and production companies with limited access to non-U.S. markets are particularly vulnerable to these tariffs. However, the firm does not foresee the tariffs being a permanent fixture, suggesting that recent share price declines could be a buying opportunity for investors.

Most Exposed Stocks

According to Scotiabank’s assessments, the companies most threatened by U.S. tariffs include Athabasca Oil Corporation (ATH.TO), Cenovus Energy (CVE.TO), and MEG Energy (MEG.TO). These companies lack significant exposure to markets beyond the U.S. and thus face the highest risks from tariff-related impacts.

Corporate Responses to Tariffs

Calgary’s Imperial Oil (IMO.TO), mainly owned by American behemoth ExxonMobil (XOM), recently reported financial results and emphasized that any tariffs imposed would have detrimental economic impacts. CEO Brad Corson reiterated the importance of the integrated energy system between Canada and the U.S. in his discussions with investors.

Looking Ahead

Suncor Energy (SU.TO) is slated to announce its financial results on Wednesday. Last week, analysts at Scotiabank and RBC designated Imperial and Suncor as top-stock picks, with their refining operations on Canadian soil making them more resilient to incoming tariffs.

Conclusion

The imposition of tariffs on Canadian oil will likely reshape the landscape of energy stocks in the market. Investors should remain vigilant, as the evolving situation presents both challenges and potential opportunities. As companies adjust to these tariffs, the oil and gas sector may reveal stocks worth acquiring as prices fluctuate, positioning astute investors to capitalize on market shifts.