Getting Venezuela Back On-Line: Watch Out, Canada!

Restoring Venezuela’s depreciated oil production infrastructure can be accelerated by focusing on what should be its key market – the US refiners in PADD 3, the Gulf Coast. Their appetite for heavy crude is not being satisfied by Canadian imports that has risen to take the place of those formerly from Venezuela and Mexico. But Venezuela enjoys unbeatable cost advantages over Canada. If it comes back on-line faster than expected, Canada could be exporting at a loss. Regime stability and contract certainty is key. A new law just passed to encourage foreign investment should help considerably. Canada cannot act quickly enough to divert to China exports now headed to the US , requiring investments in pipelines and shipping capacity that the climate-obsessed government doesn’t support. Trump could block this by supplying China from Venezuelan new production. Ultimately this could lower oil prices globally, but for now we maintain our price target range of $60 to $80 Brent.