Canada gains no advantage in U.S. oil sanctions against Venezuela

The Trump administration’s new sanctions on Venezuelan oil, aimed at driving Venezuelan President Nicolas Maduro from power triggered higher global oil prices and angry responses from China and Russia. The sanctions announced Monday are designed to interrupt the flow of oil money to the government of President Nicolas Maduro, putting pressure on him to step aside and allow opposition leader Juan Guaido to fill in as interim president.

 

Analysts at RBC Capital Markets say a lack of export pipeline capacity means Canada will not be able to boost shipments to take advantage of U.S. sanctions against Venezuela's national oil company, PDVSA. They say Mexico and Iraq are instead most likely to benefit in the race to replace Venezuela heavy crude that is imported for processing at refineries on the U.S. Gulf Coast.

 

They note that Western Canada, the third-largest supplier behind Mexico and Venezuela to the region, is "plagued by egress and policy challenges" and is not a major supplier to refineries where most of the Venezuelan barrels are processed.

 

Vice-President of North American crude oil markets for IHS Markit, Kevin Birn, said the Alberta government's production curtailment program that began January 1 means there is less oil available to increase exports and, even if the program was halted, there wouldn't be enough capacity on pipeline or rail to greatly increase shipments south.

 

Mr. Birn said the expected shortage of heavy crude supply in the U.S. will likely increase prices throughout the North American market, including in Canada. "While the general belief is that Canadian heavy barrels should benefit with the demise of Venezuela, the notional degree of market share up for grabs for Canada is not as large as for competing countries," RBC says in a report, "Until the ongoing pipeline issues are addressed, crude-by-rail is simply not as scalable as increased shipments from Mexico or Iraq. More importantly, Canada does not have much of a footprint at key refiners of Venezuelan crudes."


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