Canada’s oil industry to gain from US lifting ban on crude oil exports

Debate is now raging over the possible impact of the US lifting the ban on crude oil exports but many experts are seeing prospects of positive gains for Canadian oil industry rather than enhanced competition.

The US lifted the four decades-old ban on oil exports, clamped in 1975, following the supply boost from fracking in shale formations of Texas and North Dakota. The Congressional leaders struck a deal at the recent spending bill negotiations paving the way for the sale of US crude oil in global export markets.

Good for Canada

Highlighting the gain of Canada was Skip York, vice-president at Wood Mackenzie consulting, who said the lifting of the ban would make it easier for Canadian crude to get into lucrative Asian markets, reports CTV News.

At present, Canadian companies need a re-export permit to ship crude to the Gulf Coast and then export it to Asia via the Panama Canal. The policy change in the US will take away that obstacle, though the first choice of many Canadian producers are sending their crude by pipeline to the West Coast. The resistance faced by Canadian West Coast pipeline proposals though is humongous. Therefore, the Plan B is more important.

“It eliminates some of the regulatory burden for a Canadian producer who wants to sell into Asia and can't go through a pipeline to the West. They could still transit through the pipelines that connect Canada to the US Gulf Coast and put it onto a ship,” said York.

TransCanada Corporation's Keystone system was seeking to tap into the US Gulf Coast but the Keystone XL leg was rejected by President Barack Obama in November. Otherwise, it would have provided the direct link between Alberta and Texas.

Threat of low pricing

A looming threat to Canada’s oil sector is not just the depressed oil prices but the trend of selling it too cheap. Then a general risk in the making is the world running out of places to store the oil, according to analysts, who are predicting prices falling further to US$20 (AU$29) a barrel level.

Recently, many analysts expressed concern that some Western Canadian exporters are selling the oil at rock bottom prices. According to them, the official price of Western Canada Select closed at US$21.72 (AU$30.2) on Dec. 16 at an eight-year low, reports The Huffington Post.

Bloomberg reported that Canada is not alone in selling at a deep discount. There is Mexican oil at US$28 (AU$39) a barrel and Iraqi oil trading at around US$25 (AU$34.8) a barrel. Canada’s price is the lowest.

If that trend persists, things may get worse at the Canadian oil patch. On storage crunch, Goldman Sachs, in a report cited by FuelFix, said the world may run out of oil storage space if the oversupply persists. Such an urgency will make the North American oil, currently trading at around US$35 (AU$48.8), to fall further to US$20 (AU$27.9 ), the investment bank said.

“The quarter ahead looks a good deal more bearish than the quarter just ending,” noted Ed Morse, head of commodities at Citigroup.

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