Canadian oil producers see opportunity in Donald Trump’s trade war

Welcome to Vitality Supply, coming to you from London the place the Worldwide Vitality Company has simply reduce its expectations for oil demand progress this 12 months by a few third — 300,000 barrels a day — as a result of commerce turmoil that has adopted US president Donald Trump’s “liberation day” announcement on 2 April.

This week’s essential merchandise is a dispatch from Canada the place Ilya Gridneff experiences why the nation’s oil business is upbeat regardless of Trump’s commerce struggle.

First, I needed to direct you to a Financial Times investigation a few Sicilian refinery, buying and selling big Trafigura and a Greek delivery billionaire. It’s a cautionary story concerning the rushed offers that have been finished after Russian corporations have been pressured to drag again from Europe following Moscow’s 2022 full-scale invasion of Ukraine, highlighting the dangers of handing strategic belongings to little-known patrons.

The refinery, which is Italy’s largest, was acquired by a Cypriot fund in 2023 in a deal that was authorised by the Italian authorities. However neither the fund nor Rome publicly recognized its buyers on the time. The FT subsequently reported that one of many buyers was a basis managed by members of the family of Franco-Israeli mining magnate Beny Steinmetz, who’s interesting a corruption conviction in Switzerland.

Our article reveals that actually many of the cash got here from another person — a delivery billionaire named George Economou, whose TMS Tankers was one of many largest seaborne transporters of Russian oil following the invasion.

Now relations between Economou, Steinmetz and Trafigura — which backed the cope with working capital and a provide and offtake settlement — have soured, placing the way forward for the refinery and its staff in danger. Do read it, if you happen to haven’t already.

Now over to Ilya. Thanks for studying, Tom.

How has Donald Trump modified the world order? Our journalists will reply your questions tomorrow at 10am ET/3pm BST. Sign up here.

Why Canada’s oil producers see alternative in Trump’s commerce struggle

Canada’s oil business is doing remarkably effectively regardless of Trump’s international commerce struggle, the current meltdown in international inventory markets and a pointy fall in crude costs.

That was the message conveyed when the Canadian Affiliation of Petroleum Producers (CAPP) met in Toronto final week for an investor convention, the place members mentioned that the US turmoil supplied a “generational alternative” for Canada’s oil and fuel sector.

“The basics are sturdy, the enterprise case is there,” mentioned Lisa Baiton, the chief govt of CAPP, who instructed Vitality Supply the upside to Trump’s chaotic policymaking was that it has pressured Canada as a nation to look to the vitality sector to diversify its financial system.

“The present commerce struggle has turned Canadians’ full consideration in direction of our vitality benefit.”

It’s a key matter in Canada’s election marketing campaign as each Prime Minister Mark Carney and Conservative social gathering opposition chief Pierre Poilievre pledge to harness the nation’s vitality abundance as a strategy to enhance the financial system.  

Each males need to ramp up energy-related infrastructure, a key bottleneck that has left Canada’s oil business overly reliant on the US market.

Trump’s commerce struggle on Canada has renewed requires pipelines, and fast-tracking oil and fuel tasks for brand spanking new clients because the nation faces a sequence of US levies, together with a ten per cent tariffs on Canadian vitality provides in March. Trump subsequently paused these tariffs.

“The present administration recognised the significance of Canadian oil and fuel as a part of an built-in provide chain that’s been constructed up over 150 years with a zero tariff on USMCA-compliant items,” Baiton mentioned.

“I believe what all people is studying is that this administration could be very laborious to foretell,” she mentioned when requested if CAPP members had “patrons’ regret” after initially expressing assist for a Trump presidency. The US president campaigned on a slogan to “drill, child, drill”.

US oil costs have fallen about 12 per cent since Trump’s “liberation day” tariff announcement on April 2, ratcheting up stress on American shale producers, which face average break-even costs of about $62 a barrel.

However not all oil is equal. A barrel of oil’s worth will depend on the sort, the place it’s produced, and the place it’s bought. And Western Canadian Choose, a heavy crude oil, is having a second regardless of its personal worth drop in early April.

Canada sends 97 per cent of its crude oil to the US, the place it’s purchased and offered at a “low cost” worth as Alberta largely produces oil of a decrease high quality than Brent or West Texas Intermediate, the US benchmark. It additionally prices extra to move by way of pipelines to US refineries.

On the time of writing WCS crude is being traded at about $10 a barrel lower than WTI, the narrowest hole since 2020. The differential extra generally sits at about $13 per barrel however has regularly risen a lot larger than that.

Peter Tertzakian, founding father of ARC Monetary Corp, Canada’s largest vitality centered non-public fairness supervisor, mentioned larger differentials had “sharpened the pencils” of Canada’s oil and fuel executives who’ve “wanted to turn out to be extra environment friendly”.

“They’ve tailored to cut back their working prices per barrel.” Consequently Canadian corporations might face up to oil at $60, or decrease, he mentioned.

A weak Canadian greenback, which has dropped as a result of US tariffs, can also be benefiting these within the business which have extra scope to pay down debt and canopy working prices and salaries from income earned within the stronger US greenback.

The inventory market’s downturn as a result of Trump’s commerce struggle can also be a chance for Canada’s cash-positive corporations to purchase again discounted inventory that reduces their ranges of dividend pay outs. 

However the primary cause Canadian oil doing so effectively is the Trans Mountain Growth pipeline (TMX) that opened in Could final 12 months.

“TMX has been a game-changer. TMX has shrunk the differential,” mentioned Brian Schmidt, chief govt of Tamarack Valley Vitality. “We budgeted at C$14 ($10) [per barrel] however now it’s C$10.”

After a decade of disruptions and costing C$34bn, 4 occasions over finances, TMX is transporting report ranges of oil to the US and serving to the business generate enormous income. 

“TMX was the only largest addition to Canadian egress in additional than a decade, with out which the western Canadian business would already be dealing with an acute egress disaster and tariffs would have been far down the checklist of their considerations,” mentioned Rory Johnston, founding father of Commodity Context, an oil analysis enterprise and College of Toronto lecturer.

He added: “TMX facilitated the shrinking of Canadian crude differentials to their extraordinarily sturdy present ranges, however much more importantly it dramatically lessens the chance of damaging differential blowouts.” (Ilya Gridneff)

Energy Factors

• United Arab Emirates-based Sidara has made a £242mn offer to purchase the troubled British oil companies and engineering enterprise Wooden Group. If profitable, the bid would certainly represent a cut price. Much less {that a} 12 months in the past it supplied £1.5bn for the enterprise earlier than strolling away.

• This Thursday’s AGM at BP is set to be eventful. Main shareholder Authorized and Basic plans to vote towards the re-election of chair Helge Lund although the Norwegian has already introduced his deliberate departure subsequent 12 months.

• The FT’s vitality editor explores the tax rationale behind a sequence of current oil and gas tie-ups in the UK’s North Sea.

Vitality Supply is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with assist from the FT’s international group of reporters. Attain us at energy.source@ft.com and comply with us on X at @FTEnergy. Make amends for previous editions of the publication here.