U.S. ban on Venezuelan crude could benefit Canada

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 sizable 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.