The Trump White House moved full speed ahead last week in redirecting Venezuelan oil exports to the United States, with President Trump even promising that this new source of oil would be “taken directly to unloading docks in the United States.”
It remains to be seen whether the plan will be economical (especially if Trump’s goal is to reduce global oil prices below $50 a barrel), but it is an effort that could prove difficult for one country in particular: Canada.
Both Venezuela and Canada produce a similar type of “heavy” crude oil that U.S. refiners crave because it can be blended with U.S.-produced oil, which is of the lighter variety.
As American Fuel & Petrochemical Manufacturers, a trade partner organization, explains: “Refineries run on a blend of crude oil to run efficiently and maximize production,” and 70% of U.S. capacity runs more efficiently when those refineries include heavier crude oil, which is not produced in the United States.
A combination of factors has led Canada to become the leading supplier of this heavier oil. In recent years, 60% of all U.S. crude oil imports come from Canada, according to the U.S. Energy Information Administration. That’s almost double what the situation was a decade earlier.
This dynamic was one of the many nuances of last week, which ended with a meeting at the White House where Trump brought together executives to “make the decision about which oil companies we’re going to allow in,” as Trump put it.
The meeting was attended by a number of top oil CEOs from companies mostly based in the United States, as well as some CEOs from Italy, the United Kingdom and others.
The president made the focus and importance of this particular type of oil clear when he said that Venezuelan oil will enter the United States because “we have the refining capacity,” adding that U.S. refining was designed “based heavily on Venezuelan oil, which is a heavy oil, a very good oil.”
This could be a direct challenge for Canadian oil producers.
The markets have offered some initial verdicts. In particular, Canada-focused producers fell over the past week, while the broader energy sector remained largely stable.
Canadian Natural Resources Ltd. (CNQ) is down more than 6.5% over the past week and Enbridge Inc (ENB) fell sharply on Monday in a trend that continued as it ended the week down more than 5%.
The United States imports, on average, about 4 million barrels of crude oil per day from Canada. Trump announced this week that he had an agreement with Venezuela to send between 30 and 50 million barrels in a first wave of imports to the United States.
This is equivalent to less than two weeks of Canadian oil exports. Trump and his team quickly promised more to come, but many observers suggested the long-term effects in Canada might be limited.