Good news for Canada if U.S. bans Venezuelan oil
GEOFFREY MORGAN
CALGARY – Canadian oil producers, hit hard by persistently low crude prices and a recent increase in the value of the loonie, could get a boost from a potential U.S. ban on oil imports from Venezuela.
U.S. President Donald Trump’s administration is reportedly considering a ban on Venezuelan crude as part of package of sanctions to punish president Nicolas Maduro desire to change the country’s constitution and crackdown on political dissent.
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.
“The U.S. would have to find substitutes elsewhere,” GMP FirstEnergy analyst and commodity forecaster Martin King said. “If they did enact something like that, it would be undeniably a boost for Canadian heavy crude oil and you’d probably see that differential tighten up even more than it already has.”
King said there would be an impact on pricing for Canadian heavy oil blends should the U.S. impose a ban on Venezuela’s barrels but since 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.
The U.S. imported 673,000 barrels of oil per day from Venezuela in June, according to data from the U.S. Energy Information Administration, compared to 741,000 bpd on average last year. The South American country is a member of the Organization of the Petroleum Exporting Countries and has been on the verge of bankruptcy since crude oil prices collapsed in 2014.
“It’s quite a sizeable chunk,” IHS Markit’s director of Canadian oil sands dialogue Kevin Birn said of Venezuela’s share of the roughly 3-million-bpd market for heavy oil refining on the U.S. Gulf Coast.
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, Birn said.
CIBC World Markets analyst Jon Morrison says Venezuela has been in a tough spot for decades, but the last 12 to 18 months have been incredibly challenging.
“You’ve seen heavy oil production (there) decline by about 600,000 barrels per day as there hasn’t been enough activity there to support the growth aspirations that they have.“
Morrison said a change in sanctions against Venezuela aimed at the country’s oil exports would have a big impact on U.S. refineries, which use Venezuelan, Mexican and Canadian heavy crude as blending agents for light oil produced in the U.S., but the Canadian oilpatch has its own capacity woes to contend with.
“It’s going to be structurally challenging for Canadian exports to increase in a material way, but it will tighten up the differentials,” Morrison said, referring to the discounts, or differentials, that Canadian producers accept for their heavy oil in the U.S.
Scotiabank commodity economist Rory Johnston said the differential between West Texas Intermediate benchmark oil prices and Western Canada Select, a price for domestic heavy oil blends, has shrunk from US $16 per barrel earlier this year to US $10 recently.
Johnston said the differential could shrink another US$3 to US$4 per barrel if sanctions on Venezuelan crude were imposed quickly and U.S. refineries had to work quickly to replace their feed stocks or cut their output.
AccordingtotheU.S.Department of Energy, the U.S. imported 3.2 million bpd from Canada in June, down from a high of 3.5 million bpd in January.
Creative groups are ramping up their campaign to convince the federal government to overrule a decision by Canada’s broadcast regulator that they argue will cut investments in made-in-Canada television programming by hundreds of millions of dollars.
Nineteen groups representing media producers, writers, directors and actors published a letter Monday imploring Heritage Minister Mélanie Joly to overturn or send back the Canadian Radiotelevision and Telecommunications Commission’s decision to lower the amount some broadcasters must spend on dramas, comedies, award shows, children’s programs and documentaries.
Four of these groups filed formal petitions in June asking cabinet to set aside the decision, but more joined the chorus as the government’s Aug. 14 deadline to take action approaches. Cabinet appeals rarely work, yet the group is trying all means to reverse the decision they estimate will slash budgets by $911 million over five years.
“It’s important to keep this on the public and political radar,” Canadian Media Producers Association (CMPA) CEO Reynolds Mastin said Monday.
“We think these decisions go completely contrary to what Minister Joly is trying to achieve.”
There’s also a time crunch to influence Joly’s opinion before she releases the government’s review of support for Canadian content in the digital era, a major cultural policy expected in September.
This could shake up the industry’s funding model, which has traditionally relied on CRTC regulations to push spending on Canadian content or “Cancon.”
Joly has indicated a shift towards promotion of Cancon rather than maintaining the existing model of quotas and subsidies as Canadians increasingly get their content outside the closed broadcasting system from streaming services such as Netflix.
The government has outright rejected a Netflix or internet tax to fund content, leaving creative groups to rely on broadcasters for now.
That’s why they’re angry at the CRTC’s decision to set the floor for spending on programs of national interest at 5 per cent of revenue for the three major broadcasters Rogers Communications Inc., BCE Inc. and Corus Entertainment Inc.
Rogers’ spending was already set at 5 per cent, but Bell and Corus were historically required to spend more (Bell acquired Astral, which spent 16 per cent on such programs, and Corus spent 9 per cent).
The creative groups expect to see a “meaningful” decrease in spending by Corus and Bell, Mastin said. An analysis by Nordicity on behalf of the CMPA estimated production would decrease by $189 million in 2017-2018 and $911 million over the five-year licence period.
“We have a long history where broadcasters do the minimums,” he said. “What should be floors become ceilings.”
For their part, the broadcasters asked the CRTC for standardized spending levels. Bell said it needed the flexibility to spend on relevant programming and Corus said it would exceed the proposed spending level in spaces that warrant higher spending due to audience demand.
As it stands, private broadcaster licensing fees were the second-largest source of funding of Canadian television production in 2015-2016, according to the latest report by the CMPA. Tax credits were the largest funding source at 28 per cent, followed by the broadcaster fees at 18 per cent and foreign funding at 13 per cent.
The groups advocate the government maintain spending at historical levels in order to keep talent from fleeing south of the border, Mastin said. He argues that without the cash and the requirement that Canadian content be shown during prime time, shows won’t get the promotion required to become stars in other markets – Joly’s ultimate goal.
The Minister’s press secretary, Pierre-Olivier Herbert, said the government understands the sector is concerned and is still reviewing the impact of the decision.