Venezuela supply risk 'not significant,' WCS crude differentials stabilize: Imperial Oil

Imperial Oil sees minimal market disruption from potential increases in Venezuelan crude supply, with Canadian heavy oil differentials stabilizing after an initial widening when talks of restoring Petróleos de Venezuela exports first emerged, executives said during the company's fourth-quarter earnings call Jan. 30.

"We are not seeing any big changes, to be honest," Chief Executive Officer John Whelan said when asked about shipping fundamentals for Canadian heavy crude since Venezuela supply discussions intensified.

"The differentials did kind of widen a bit originally when there was this talk of the 500,000 barrels coming to Gulf Coast, seemed to be a little bit of overreaction that kind of came back down," Whelan added.

The crude spread has since narrowed, as market participants reassessed the timeline and likelihood of sustained Venezuelan production growth.

Platts, part of S&P Global Energy, assessed Western Canadian Select crude at Hardisty, Alberta, at a $13.90/barrel discount to the West Texas Intermediate CMA on Jan. 29, widening from the $13.25/b discount on Jan. 5 following the US's removal of Nicolas Maduro from Venezuela. The differential has widened as as markets have reacted to increasing tensions between the US and Iran, which could further complicate the heavy supply picture.

Whelan's comments come as Canadian heavy crude producers navigate competing pressures on differentials, including rising apportionment on Enbridge's Mainline pipeline system that has surprised market participants and uncertainty around potential Venezuelan barrels competing for the same US Gulf Coast refining capacity that processes WCS.

The spread between WTI and WCS is a key driver of netbacks for Canadian heavy oil producers shipping barrels to USGC refineries via pipeline systems, including Enbridge's Mainline.

Venezuelan crude, like Canadian bitumen-derived heavy oil, is high in sulfur and requires complex refining equipment, making the two grades direct competitors for coking capacity at USGC refineries.

"Obviously, I think the outlook around Venezuela does remain uncertain," Whelan said. "There's a lot of things that need to happen before we probably see long term production increases: stability, investment conditions, legal and commercial constructs in the country, infrastructure and supply chain improvements and things."

Venezuela's crude production has declined dramatically from over 3 million barrels/day in the late 1990s to around 800,000 b/d currently, according to secondary sources tracked by OPEC.

The country's oil infrastructure has deteriorated significantly due to underinvestment, US sanctions imposed in 2019, and operational challenges at state-owned PDVSA. Restoring production would require substantial capital investment in fields, processing facilities and export terminals.

"We are watching that closely," Whelan said. "I see a huge role for Canada when you think about global supply demand balance, regardless of what happens with Venezuela over time."

Company sees highest oil production in decades

Imperial Oil's full-year production averaged 438,000 barrels of oil equivalent per day, the company's strongest annual output since the mid-1990s, Whelan said. The record production comes despite upstream realizations weakening amid global crude inventory builds.

Imperial's fourth-quarter upstream production averaged 444,000 boe/d, down from 460,000 b/d in the year-earlier period.

At the company's flagship Kearl oil sands mine in northern Alberta, total gross production averaged 274,000 b/d during the quarter, with Imperial's 71% share representing 194,000 b/d, compared with 299,000 b/d total output in the fourth quarter of 2024.

At Cold Lake, production averaged 153,000 b/d in the quarter. The company achieved first oil at its new Leming SAGD project, which is ramping up toward a peak of around 9,000 b/d. Annual Cold Lake production averaged 151,000 b/d.

Imperial's 25% share of Syncrude production averaged 87,000 b/d in the quarter, up from 81,000 b/d in the year-earlier period.

Imperial's downstream operations averaged 408,000 b/d of refinery throughput in the quarter, compared with 411,000 b/d in the year-earlier period, as the company conducted planned maintenance at its Sarnia, Ontario, refinery and additional work at facilities in its eastern manufacturing hub.

Capacity utilization reached 94%, down from 95% in the fourth quarter of 2024.

Petroleum product sales averaged 479,000 b/d, up from 458,000 b/d in the year-earlier period, driven by higher volumes in supply and retail channels. Full-year downstream throughput averaged 402,000 b/d with capacity utilization of 93% and petroleum product sales of 470,000 b/d.

Industry refining margins improved in the fourth quarter, influenced by geopolitical factors and supply disruptions, Whelan said.

The margin environment for refiners processing Canadian heavy crude strengthened as global supply disruptions tightened product markets, particularly for middle distillates, including diesel and jet fuel.