Key Takeaways
- North American oil prices increased by over 1% on Monday due to the upheaval in Venezuela
- The stock prices of large Canadian oil and gas companies have fallen, with the Toronto Stock Exchange’s energy index down 4.5% by midday Monday
- Venezuela produces a heavy crude similar to the type of oil produced in Western Canada, and its oil reserves are significant
- The removal of President Nicolas Maduro is expected to impact oil markets, but rebuilding Venezuela’s energy sector infrastructure will take years
Introduction to the Situation
The recent upheaval in Venezuela has sent shockwaves through the oil market, causing North American oil prices to climb by more than one per cent on Monday. A barrel of West Texas Intermediate, the North American benchmark, was trading about 1.5 per cent higher by midday, up nearly $1 to just over $58 US. This increase in oil prices is a significant development, especially considering that prices remain relatively cheap and are about $15 lower than compared to one year ago. The situation in Venezuela has sparked concerns about the country’s ability to increase its oil and natural gas production, which in turn is affecting the stock prices of Canadian oil and gas companies.
Impact on Canadian Oil and Gas Companies
The Toronto Stock Exchange’s energy index was down about 4.5 per cent by midday Monday, with several Canadian oil and gas companies taking a hit to their stock price. Shares of the largest oil and gas companies in the country, including Suncor Energy, Cenovus Energy, and Canadian Natural Resources Ltd., were trading lower, with some experiencing drops of up to seven per cent. This decline in stock prices is largely due to the uncertainty surrounding Venezuela’s ability to increase its oil production, which could potentially impact the global oil market. According to Barry Schwartz, chief investment officer at Baskin Wealth Management, "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."
Venezuela’s Oil Reserves and Production
Venezuela produces a heavy crude, which is similar to the type of oil that is mostly produced in Western Canada. The country has some of the largest oil reserves around the world, but its oil production has been declining in recent years due to sanctions and failed government policies. In fact, Venezuela only pumped about 900,000 barrels per day out of the ground last year, which is a significant drop from its peak production of 3.7 million barrels per day in 1970. The removal of President Nicolas Maduro is expected to impact oil markets, but rebuilding Venezuela’s energy sector infrastructure will take years. As Schwartz noted, "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."
Market Reaction and Outlook
Despite the decline in stock prices of Canadian oil and gas companies, the overall Toronto Stock Exchange and North American markets rose in value on Monday. This suggests that the market is not overly concerned about the impact of the situation in Venezuela on the global oil market. However, the situation is still uncertain, and it remains to be seen how Venezuela’s new government will address the country’s oil production and exports. As the situation continues to unfold, it will be important to monitor the impact on oil prices and the stock prices of Canadian oil and gas companies. In the meantime, investors will be watching closely to see how the situation develops and how it will affect the global oil market.
