Canadian heavy oil prices have sharply declined this week in light of recent events in Venezuela and the potential increase in Venezuelan oil imports to the United States. The price gap between Western Canada Select (WCS) and the North American benchmark West Texas Intermediate (WTI) has widened to $14.45 per barrel, the largest since July 2024.
The U.S. intervention in Venezuela, which includes seizing tankers and plans to boost oil production in the country within 18 months, has contributed to the significant discount in heavy oil prices. President Donald Trump announced a deal on Tuesday for Venezuela to supply up to 50 million barrels of oil to the U.S., creating competition with Canadian heavy oil production.
Both Venezuela and Canada produce a similar grade of heavy oil, with the U.S. Gulf Coast refineries being the focal point for their exports. Approximately 10% of Canada’s total oil exports, equivalent to around 350 thousand barrels per day, are directed to this region. Analysts suggest that even a slight increase in Venezuelan oil reaching the U.S. Gulf Coast could impact prices significantly.
According to Mark Parsons, the chief economist at ATB Financial, while the current situation poses some risks to Canadian heavy oil prices, it would require substantial investments and years for Venezuela to reach its previous oil production levels. Despite Venezuela’s peak production of 3.7 million barrels per day in 1970, various challenges have led to a significant decline, with output averaging around 900,000 barrels per day last year.
In the long run, closely monitoring the developments in Venezuelan oil production will be crucial to assessing any potential threats to the Canadian oil industry.