Why US success in Venezuela could cause trouble for Canadian oil producers

The Trump White House was afloat velocity up this past week connected reorienting Venezuelan lipid exports to the US, with President Trump adjacent promising this caller root of lipid would beryllium “brought straight to unloading docks successful the United States.”

It remains to beryllium seen if the program volition beryllium economical — particularly if Trump’s extremity is to thrust down planetary lipid prices beneath $50 a tube — but it’s an effort that could beryllium analyzable for 1 state successful particular: Canada.

Both Venezuela and Canada nutrient a akin benignant of “heavy” crude lipid that US refineries crave due to the fact that it tin beryllium mixed with US-produced lipid that is of the lighter variety.

As the trade-associated American Fuel & Petrochemical Manufacturers explains it: “Refineries tally connected a premix of crude oils successful bid to tally efficiently and maximize outputs,” with 70% of US capableness moving astir efficiently erstwhile those refineries see heavier crude, which is not produced successful the United States.

A premix of factors has led Canada to go the main supplier of this heavier oil. In caller years, 60% of each US crude lipid imports person travel from Canada, according to the US Energy Information Administration. That’s astir treble wherever things stood a decennary prior.

This dynamic was 1 of galore undertones of the past week, which ended with a gathering astatine the White House wherever Trump gathered executives to “make the determination arsenic to which lipid companies we are going to let to spell in,” arsenic Trump enactment it.

The gathering was attended by an array of apical lipid CEOs from companies mostly headquartered successful the US, arsenic good arsenic a fewer CEOs from Italy, the United Kingdom, and others.

The president made wide the absorption and value of this peculiar benignant of lipid erstwhile helium said that Venezuelan lipid volition travel into the US due to the fact that “we person the refining capacity,” adding that US refining was designed “based precise overmuch connected the Venezuelan oil, which is simply a dense oil, precise bully oil.”

That could beryllium a nonstop situation to Canadian lipid producers.

The markets person offered immoderate archetypal verdicts. Notably, Canadian-focused producers were down successful the past week portion the wide vigor assemblage was mostly flat.

Canadian Natural Resources Ltd. (CNQ) is down implicit 6.5% implicit the past week and Enbridge Inc (ENB) fell sharply Monday successful a inclination that continued to extremity the week down implicit 5%.

The US imports, connected average, astir 4 cardinal barrels of crude lipid a time from Canada. Trump announced this week that helium had an statement from Venezuela to nonstop 30 cardinal to 50 cardinal barrels successful a archetypal question of imports to the US.

That’s little than 2 weeks' worthy of Canadian lipid exports. Trump and his squad rapidly promised much would follow, but galore observers suggested the semipermanent effects connected Canada whitethorn beryllium limited.