Possible U.S. sanctions on the socialist dictatorship could be an opportunity for our oil industry to profit.
Venezuela’s seemingly endless descent into total ruin continues, and the refusal of the socialist Maduro regime to stop oppressing their people could decimate what’s left of the once strong economy in that country.
With U.S. President Donald Trump seriously considering the imposition of sanctions on Venezuela – including banning all crude oil imports from the country – there is a possibility Canada could benefit.
As Geoffrey Morgan wrote in the Financial Post, “Analysts say Canadian heavy crude oil prices would improve if a ban on Venezuelan crude forced U.S. Gulf Coast refineries to the replace heavy volumes they source from the South American country. Western Canada Select, the heavy oil benchmark, was trading at $45.04, compared to $39.17 a year ago, according to data from the Petroleum Services Association website.”
Morgan also notes the thoughts of Kevin Birn – IHS Markit’s director of Canadian oil sands dialogue. Said Birn, “A ban on Venezuelan blends would be damaging for the South American country and would also boost prospects for Canadian and Mexican heavy oil barrels that compete against Venezuela at certain U.S. refineries.”
Standing in the way of a big gain for Canada from U.S. sanctions on Venezuela could be pipeline capacity. Analyst Martin King pointed out that “Canadian export pipelines to the U.S. are close to full, it would be difficult for domestic producers to ship enough crude to offset the loss of Venezuelan supplies.”
Venezuela exported 673,000 barrels of oil to the U.S. in June, compared to 3.2 million barrels exported by Canada.
While the lack of additional exporting capacity is an issue (and shows why Canada needs to be building more pipelines), we would still see a benefit from sanctions on Venezuela due to a change in the discounts Canadian oil producers take when selling heavy oil to the U.S. In the case of sanctions – with U.S. refineries desperate to get more oil to fill the gap that would be created – some predict the discount could shrink from $10 USD to just $7 or $6.
So, while we may not be able to fill the full supply gap that would be created by sanctions on Venezuela, Canada stands to benefit if the Trump administration goes in that direction.
And yet, imagine how much better that benefit could be if we actually had a federal government and provincial government in Alberta that actually supported the Canadian oil industry, instead of standing against it.