Canadian heavy crude prices have edged slightly lower so far in the first session after the US captured Venezuela's president, but the long-term outlook is less certain with the White House calling on US producers to revive Venezuela's oil sector.
Cold Lake at Houston, Texas, for February delivery was heard trading between a $6.15-6.40/bl discount to the WTI Nymex calendar month average early Monday, a slight decrease from the $6.24/bl discount at which the heavy sour grade was last assessed on 31 December.
Canadian crude prices at other hubs also posted modest fluctuations early Monday that could be attributed to typical factors such as maintenance or pipeline capacities. Western Canadian Select (WCS) in Cushing, Oklahoma, was heard 30¢/bl lower at a $7.30/bl discount to the basis, while closer to the source in Hardisty, Alberta, the same grade gave up about 45¢/bl to trade near a $13.45/bl discount.
Pipeline-connected Canadian crude has become the primary source for some refiners on the US Gulf coast, where it competes with heavy grades from Mexico, Venezuela, and Colombia.
But an overhaul of Venezuela's oil sector is coming, according to US president Donald Trump after he ordered the capture of the country's president Nicolas Maduro and his wife over the weekend. What effect that will have on oil markets is unclear, and while trade flows could shift in the near-term with China seeking alternatives, boosting upstream output would likely require both sharply higher oil prices and significant capital investment.
In January-October last year, Texas refiners imported 392,000 b/d of crude from Canada, according to the US Energy Information Administration (EIA). This was ahead of Mexico at 224,000 b/d, Colombia at 113,000 b/d and Venezuela at 60,000 b/d.
Even if competition in the US Gulf coast were to rise, most of Canada's exports to the US make the shorter trek to refiners in Illinois, Indiana, Ohio, Minnesota and Montana. Nearly three-quarters of Canada's 4mn b/d exports to the US come from Alberta and are destined for the US midcontinent region.
Additionally, Canadian crude flows to the Pacific coast have been on the rise following the near-tripling of the Trans Mountain pipeline system to 890,000 b/d, an expansion that already appears to have reduced some flows to the US Gulf coast. Prices of high TAN heavy crude cargoes loading at Vancouver, British Columbia, were also heard Monday trading steady on the week at a $5.70-$5.50/bl discount range to March CMA Nymex.
Canadian prime minister Mark Carney has vowed to increase exports of commodities to more countries to diversify away from the US on account of Trump's economic threats toward Canada and his warnings of possible annexation. Carney recently signing a memorandum of understanding with Alberta to build another west coast pipeline with a capacity of "at least" 1mn b/d to further connect with Asian buyers.
Nonetheless, the prospect of a potential revival of Venezuela's crude production prompted equity traders Monday to reduce holdings of Canadian crude producers on the Toronto Stock Exchange. Shares of oil sands operator Cenovus Energy and Canadian Natural Resources were down by 8pc by mid-morning, while Suncor Energy, Imperial Oil, and Strathcona Resources were down by about 5pc.
