The discount on Western Canada Select to North American benchmark West Texas Intermediate futures widened on Monday as traders and analysts assessed the potential for further weakening if Venezuela is able to ramp up its oil output over time.
WCS for February delivery in Hardisty, Alberta, settled at $13.55 a barrel below the U.S. benchmark WTI, according to brokerage CalRock, compared with $13.15 on Friday. Crude output in Venezuela could increase up to half a million barrels per day in the next two years if Venezuela is politically stable and U.S. companies invest there, oil analysts said following the U.S. capture of President Nicolas Maduro.
Any possible end to U.S. sanctions and a restoration of oil flows from Venezuela would likely have a negative impact on pricing for similarly graded heavy crude from Canada, which currently sends about 90% of its oil exports to the U.S, market observers said.
But even if sanctions are removed, said Randy Ollenberger, managing director at BMO Capital Markets, it will take time and massive amounts of capital investment to ramp up Venezuelan output significantly. The longer it takes, the more time Canadian producers will have to explore alternatives such as shifting more barrels to the Trans Mountain pipeline for export to Asian markets, he said.
Companies could also re-export more Canadian barrels to Asia from the U.S. Gulf Coast, something that has already been happening in larger volumes as Canadian output rises, said Rory Johnston, founder of the Commodity Context newsletter.
He added Canadian crude faced competition from Venezuelan barrels in the Gulf Coast prior to the imposition of U.S. sanctions, and the discount on WCS was wider then than it is now.
“It’s not like this (Venezuela) is going to bottle up Canadian barrels in any real way,” Johnston said.
Global oil prices settled up $1 a barrel on Monday after President Donald Trump said the U.S. would take control of the South American nation, home to the world’s largest oil reserves, following the arrest of its president.
(Reporting by Amanda Stephenson in Calgary; Editing by Tasim Zahid)