Toronto/CMEDIA: Following the reported capture of Venezuela president Nicolas Maduro by the U.S, the U.S. President Donald Trump’s decision to take control of Venezuela’s vast oil reserves led Canadian oil and gas companies to be severely hit today in their stock price.
With the Toronto Stock Exchange’s energy index down about 4.5 percent by midday Monday, several Canadian Natural Resources fell eight per cent ($43.33), Cenovus Energy dropped 8.7 per cent ($21.97), and Suncor Energy declined by $3.53 to $59.08.
“I think the reaction today is based upon a lot of ignorant views,” Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners reportedly told BNN Bloomberg in an interview.
“This belief that Venezuela is suddenly, magically — after many years of chronic underinvestment — going to surge production, and not just production, but heavy oil, and therefore displace the demand for Canadian production is really, really dumb.”
Even if Venezuela is able to resurrect their oil production, Nuttall said, due to the growing global demand for oil, which is projected to grow until at least 2050, global oil markets will still need every barrel.
He said that this year is expected to mark the peak rate of production from non-OPEC+ producers, which currently supplies two-thirds of the global oil.
With OPEC+ having only about 1.4 million barrels per day of actual spare capacity, Nuttall believes, rather than the nearly four to five million barrels per day estimated by the International Energy Agency.
“The world’s still going to need every barrel that Venezuela can produce in addition to every barrel that Canada can produce,” said Nuttall. Venezuela produces a heavy crude similar to the type of oil that is mostly produced in Western Canada.
“Everybody is worried about how Venezuela will be able to increase its oil and natural gas production, because they have significant amounts of oil reserves, especially similar to what Canada has,” said Barry Schwartz, chief investment officer at Baskin Wealth Management.
Though stocks of Canadian energy companies are down, Schwartz said it’s likely an overreaction, noting it will likely take years to rebuild Venezuela’s energy sector infrastructure before production could noticeably increase.
“It’s oil that has to be transported and refined. It’s expensive stuff to get out of the ground. But you can see the longevity of those reserves and the value of them,” he said.
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Canadian Oil markets have been impacted by the removal of Maduro during the weekend, because Venezuela has some of the largest oil reserves around the world.
Following many years of declining investment due to sanctions and failed government policies, Venezuela which once was a major producer of oil, only pumped about 900,000 barrels per day out of the ground last year.
At its peak, Venezuela produced 3.7 million barrels per day in 1970.
Overall, the Toronto Stock Exchange and North American markets all rose in value Monday.
How does increased oil production in Venezuela affect Canada?
Randy Ollenberger, managing director of oil and gas equity research at BMO Capital Markets believes that Venezuela remains a direct competitor to Canada in heavy crude markets.
He adds that Canadian oil companies could be displaced from the market if U.S. companies invest significant capital to increase Venezuelan oil production, which would then go to the U.S. Gulf Coast for refining.
In that case, Canada, which sends billions of barrels of oil to the U.S., would have to move that oil elsewhere, he said.
“We have some pipeline capacity to the West Coast that’s available, but not enough to fully move that oil,” said Ollenberger.
“So that would create some challenges for Canadian heavy oil producers, and we’re seeing that reflected in the performance of those stocks today.”
Ollenberger said Canada would not see an immediate impact on supply in that situation, and that it would take 24 to 36 months to see a major effect.
However, he noted that smaller increases in Venezuelan exports could happen sooner and added that restoring production to historic levels would require significant capital.
Need for another pipeline
Nuttall emphasized the need to build another pipeline to Canada’s West Coast to increase oil capacity by at least one million barrels per day and diversify the nation’s customer base.
“We cannot be under the thumb of the U.S. We have long argued for this, and this past weekend’s events is yet another example of the necessity for that,” said Nuttall.
