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Don’t expect changes in Venezuela to have an immediate impact on the prairie oil industry or gas prices.
Patrick de Haan, head of petroleum analysis at GasBuddy, emphasized that despite U.S. President Donald Trump’s projections for big growth in the Venezuelan oil industry, that prospect is still years away.
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“There’s a lot of optimism and promise, it sounds like,” de Haan said in reference to the arrest of Venezuelan President Nicolás Maduro by U.S. forces.
“But at the end of the day, the reality is there’s still a lot of very pro-Maduro, very hardline politicians still in place in the regime in Venezuela. While President Trump has certainly talked up the potential for Venezuela to increase oil output, the reality is that not much has yet changed. If regime change happens, that will probably open the door to more potential. But we are talking about an oil industry in Venezuela that has fallen into disrepair under heavy U.S. sanctions, under a lack of investment, mismanagement, corruption, and to get this oil output increased it would take likely 10s of billions of dollars and many years to start realizing some of the hopes that President Trump seems to be after with increases potentially of maybe a million barrels a day taking five years or longer.
“We are a long way away from seeing meaningful increases in Venezuela’s oil production. And there’s still a lot that needs to go absolutely right for that to be realized.”
The current low price of oil also makes it less likely companies will be willing to invest billions to renew infrastructure in Venezuela, de Haan noted.
“Notwithstanding all the risks that I mentioned about regime shift, you also have oil prices nearing multi-year lows at $56 to $57 a barrel as OPEC has been raising production,” de Haan said. “What oil company is going to take a big risk entering into Venezuela, a country that seized U.S. oil company assets in 2007… when oil prices are so low? The return right now on investment is really not worth the risk.”
Even if production increases from the Venezuela’s oil industry, de Haan said he can’t see that impeding the American market for Canadian oil.
“When you talk about the U.S. and Canada and their trade when it comes to oil, the two are tied together,” he said.
“Canada has direct access to many U.S. markets, refineries. Some 40 refineries in the United States rely on pipelines that deliver Canadian crude oil. You’d be talking about 10s of billions of dollars to re-shift these networks away from Canadian oil. It’s just not feasible to think about any future where Venezuelan crude oil is a substitute for Canadian oil. That is absolutely a pipe dream that will never be realized.”
But, the analyst added, volatility in the American market could still be a concern for the Canadian industry.
“Canada would probably be smart with President Trump’s rhetoric to explore more of its own pipelines to become less reliant on is seemingly becoming a less stable trading partner in the United States,” de Haan said.
He said low oil prices and the resulting low gas prices could be here to stay this year.
“We are in the midst of a seasonal downturn in gasoline consumption as well as oil consumption,” de Haan said.
“As we go through colder weather, Canadians generally do not use as much gasoline in these colder months, so gas prices are a bit depressed. I do expect that these relatively low oil prices should continue that courtesy of OPEC raising production, as well as Canada and the United States slowly increasing production. Oil prices will likely remain probably below the $60 barrel mark for a good portion of the year ahead.”
He added the average price in Swift Current right now is $118.9 a litre, and prices could stay close to that number for the next four to six weeks.
“But by the time we get to late February, we will be entering the start of refinery maintenance, as well as beginning the transition to more expensive cleaner burning blends ahead of the summer,” de Haan said.
“Coupled with rising seasonal demand as we start to see some return of gasoline consumption, and that will generally push prices up as we enter spring.”
