Canadian oil stocks fell broadly on Monday, as the U.S. capture of Venezuela’s President Maduro threatens to pose problems for the country’s oil producers, especially those focused on Canadian oil sands.
Morgan Stanley analysts noted Venezuela’s oil is predominantly heavy sour crude, similar in quality to Western Canadian Select, and while the near-term supply impact from the aggressive U.S. policy in Venezuela appears limited, the bank suggests an easing of sanctions on the country could add to an already very oversupplied oil market.
Among potentially relevant stocks, Canadian Natural Resources (CNQ) closed -6.1%, Cenovus Energy (CVE) -5%, Enbridge (ENB) -3.2%, Baytex Energy (BTE) -3%, Suncor Energy (SU) -1.8%, Imperial Oil (IMO) -1.5%, Pembina Pipeline (PBA) -1.3%, TC Pipelines (TRP) -0.8%.
Morgan Stanley pointed to Cenovus (CVE) and Imperial Oil (IMO) as most exposed to changes in the WCS-WTI spread, while Suncor (SU) and Canadian Natural Resources (CNQ) are more insulated.
However, it would be difficult for the U.S. to displace the use of Canadian crude in the short term, Servus Credit Union chief economist Charles St. Arnaud said, as “most of Canada’s oil is used by refineries in the U.S. Midwest, accounting for ~69% of total Canadian oil exports… This usage will be difficult to replace, as all the major oil pipelines have oil flowing from the Midwest towards the Gulf Coast.”
Meanwhile, an eventual increase in Venezuelan oil production would provide a significant boost for U.S. refiners, since much of their Gulf Coast refining capacity is designed for heavy crude like the oil in Venezuela, Raymond James analysts said, with Valero (VLO) having the most capacity in the U.S. Gulf, followed by Marathon Petroleum (MPC) and Phillips 66 (PSX); the three stocks finished +9.2%, +5.9% and +7.2%, respectively.