Canadian heavy oil prices have taken a sharp dive this week in light of recent events in Venezuela and the potential increase in Venezuelan oil imports to the United States. Western Canada’s heavy oil is currently experiencing its largest discount compared to North American benchmark prices since July 2024. The price of Western Canada Select (WCS) is now $14.45 per barrel below West Texas Intermediate (WTI), the standard North American oil blend.
While heavy oil prices have faced substantial discounts in the past decade, the current widening gap is due to U.S. involvement in Venezuela, including the seizure of tankers and a commitment by the Trump administration to boost oil production in Venezuela within 18 months. President Donald Trump recently announced an agreement in which Venezuela would supply up to 50 million barrels of oil to the U.S.
Venezuela and Canada are major producers of a similar grade of heavy oil, leading to potential competition between the two countries, particularly in the U.S. Gulf Coast refineries. Approximately 10% of Canada’s total oil exports, equivalent to around 350 thousand barrels per day, are destined for the Gulf Coast refineries. According to a recent analysis by the Servus Credit Union, any increase in Venezuelan oil reaching the U.S. Gulf Coast could impact prices significantly, as noted by Mark Parsons, chief economist at ATB Financial.
While short-term effects are noticeable, Parsons emphasized that substantial investment and years of effort would be required to bring Venezuelan oil production back to previous levels. Despite Venezuela’s peak oil production in 1970 at 3.7 million barrels per day, subsequent sanctions and governmental mismanagement have led to a significant decline, with output averaging around 900,000 barrels per day last year. The situation is being closely monitored for any potential threats to the oil market.