Why US success in Venezuela could cause trouble for Canadian oil producers
The Trump White House was full speed ahead this past week on reorienting Venezuelan oil exports to the US, with President Trump even promising this new source of oil would be “brought directly to unloading docks in the United States.”
It remains to be seen if the plan will be economical — especially if Trump’s goal is to drive down global oil prices below $50 a barrel — but it’s an effort that could be complicated for one country in particular: Canada.
Both Venezuela and Canada produce a similar type of “heavy” crude oil that US refineries crave because it can be mixed with US-produced oil that is of the lighter variety.
As the trade-associated American Fuel & Petrochemical Manufacturers explains it: “Refineries run on a mix of crude oils in order to run efficiently and maximize outputs,” with 70% of US capacity running most efficiently when those refineries include heavier crude, which is not produced in the United States.
A mix of factors has led Canada to become the main supplier of this heavier oil. In recent years, 60% of all US crude oil imports have come from Canada, according to the US Energy Information Administration. That’s nearly double where things stood a decade prior.
This dynamic was one of many undertones of the past week, which ended with a meeting at the White House where Trump gathered executives to “make the decision as to which oil companies we are going to allow to go in,” as Trump put it.
The meeting was attended by an array of top oil CEOs from companies mostly headquartered in the US, as well as a few CEOs from Italy, the United Kingdom, and others.
The president made clear the focus and importance of this particular type of oil when he said that Venezuelan oil will come into the US because “we have the refining capacity,” adding that US refining was designed “based very much on the Venezuelan oil, which is a heavy oil, very good oil.”
That could be a direct challenge to Canadian oil producers.
The markets have offered some initial verdicts. Notably, Canadian-focused producers were down in the last week while the overall energy sector was largely flat.
Canadian Natural Resources Ltd. (CNQ) is down over 6.5% over the past week and Enbridge Inc (ENB) fell sharply Monday in a trend that continued to end the week down over 5%.
‘Canadian oil will be competitive’
The US imports, on average, about 4 million barrels of crude oil a day from Canada. Trump announced this week that he had an agreement from Venezuela to send 30 million to 50 million barrels in a first wave of imports to the US.
That’s less than two weeks' worth of Canadian oil exports. Trump and his team quickly promised more would follow, but many observers suggested the long-term effects on Canada may be limited.
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