Since our initial quick take on the situation in Venezuela on Monday, the ATB Economics team has been fielding a number of questions on how this may impact Canada’s oil sector.

This Twenty-Four provides an update, with additional background information on where Canadian oil gets exported based on questions received.

Yesterday, Canadian heavy oil prices declined by about 2%, with the differential between WTI and WCS widening to over $US14.4/bbl. This came on news that the Trump administration is taking more possession of Venezuelan crude, potentially adding to the supply of heavy barrels sent to the U.S. Gulf Coast. Our latest outlook is that the differential averages just over $US14/bbl in 2026, although this was prepared just before the U.S. attack on Venezuela. We see some modest upside risk to the differential forecast that we’re closely tracking.

The main risk for the Canadian oil sector is longer-term in nature. If Venezuela is successful at bringing back oil production to say 3 million barrels per day (up from less than 1 million today), those barrels could compete with Canadian heavy crude in the U.S. Gulf Coast, resulting in a wider light-heavy differential. That, of course, is a big ‘if’, with companies needing enough confidence to make the necessary investments. There are many barriers standing in the way, including the time and tens of billions needed to restore production in Venezuela, the heightened political risks, and a weaker oil price environment.

The implication for Canada is the need to diversify its customer base by improving access to overseas markets. This would reduce market concentration risk, improve pricing and enable further export gains.

Patrick O’Rourke, Managing Director at ATB Capital Markets, does a great job explaining the impact on the crude oil market in a recent BNN Bloomberg interview.

A Backgrounder

How did Canada become so dependent on the U.S. oil market?

Growing U.S. demand, close proximity, supporting pipeline infrastructure, and refineries equipped to process our heavy barrels are key reasons. 

Canada has also moved slowly on pipeline projects that would send oil to non-U.S. markets. 

The Trans Mountain Expansion (TMX) recently accomplished this despite coming in well over budget. Northern Gateway, which was intended to send bitumen from Alberta to Kitimat, B.C., was cancelled by the federal government in 2016.

Today, about 90% of exported Canadian crude flows to the U.S.  

Where does Canadian oil get shipped to in the U.S.?

Over 60% of Canadian oil (primarily from the oil sands) exported to the U.S. ends up at Midwest refineries (an area called PADD 2).

Another 10% is sent to the U.S. Gulf Coast (PADD 3). Canadian crude has helped displace declining supplies from Mexico and Venezuela. Keystone XL, cancelled by President Obama and then again by President Biden, would have brought more Canadian crude to that market.

With TMX now complete, the West Coast has increased its share to about 10%.

Why does the U.S. both import and export oil?

U.S. energy infrastructure (refineries and the pipeline network) was originally designed to bring oil into the country, not the reverse.

When oil production took off following the U.S. shale revolution in the early 2010s, the existing infrastructure was used to refine imported barrels. This was more efficient than spending billions to retool refineries to process U.S. light oil. Additional production not used domestically is now exported. The U.S. government officially lifted the ban on exports in 2015.

In 2020, the U.S. became a net exporter of oil, meaning its annual exports exceed its imports.

As we have discussed, imports of a secure and steady supply of discounted Canadian crude have enabled the U.S. to export more of its light and refined oil overseas.

This is a win-win for the U.S., and likely one of the reasons Canadian oil always received a lower tariff rate of 10% when President Trump first introduced tariffs on Canada in the February 2025 Executive Orders (oil is now exempt by claiming CUSMA compliance).

In what way does Canadian oil ‘compete’ with Venezuelan oil?

Venezuela and Canada produce a similar grade of crude oil - namely it’s heavier and has a higher sulfur content. This matters, because U.S. refineries are equipped to process this type of crude.

The risk is that more heavy oil from Venezuela could displace Canadian heavy crude. Currently, with oil production less than 1 million barrels per day and sanctions in place, very little Venezuelan oil makes its way to the U.S. (see chart). But that could change, creating more competition with Canada at the U.S. Gulf Coast, where Venezuela has a location advantage over Canada.

In the U.S. Midwest, where Canada sends most of its exported crude, this is much less of a concern. Canada has a location and oil infrastructure advantage over Venezuela in this region. 

Is Canada making progress expanding into non-U.S. markets?

Yes, but there is still a long way to go.

TMX has enabled massive gains in exports to the Asian markets in the last two years.  Crude oil exports to Asia are running at roughly $600 million/month, up from zero before the expanded pipeline commenced operations (this chart appeared in the Globe and Mail’s Charts to Watch in 2026). On the gas side, LNG Canada phase 1 is increasing gas shipments. On the propane side, the Ridley Island export terminal is lifting exports to Korea and Japan.

This is progress, but the U.S. by far dominates. The U.S. accounted for 90% of Canada’s crude exports in 2025 - down from 97% pre-TMX in 2023.

What can Canada do?

Canada has little influence over global geopolitical events, including in the U.S. and Venezuela.

But it can control where its oil goes by building transportation infrastructure to alternative markets.

The benefits of expanded market access gained through pipeline and export infrastructure are clear. We’re already seeing it with TMX -  surging Asian shipments and a narrower light-heavy differential.

In short, reaching new markets through additional egress capacity reduces market concentration risk, improves pricing and expands exports.

The MOU between Alberta and Canada is intended to do just that, with Mark Carney saying on January 6:  "...we’ve got a competitive product and we’d be diversifying our markets, and that’s one of the reasons why we signed the comprehensive MOU with Alberta."

Answer to the previous trivia question: The Silver Surfer first appeared in Fantastic Four #48, published in March 1966.

Today’s trivia question: In the U.S. oil market, what does the term PADD refer to and where did it come from?