(The opinions expressed here are those of the author, a

columnist for Reuters)

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WCS discount narrows to lowest since late 2020

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Traders discount chance of new U.S. tariffs on Canada

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Canadian crude benefits from U.S. actions against

Venezuela

By Ron Bousso

LONDON, March 27 - Canadian oil producers selling crude

to U.S. refiners are enjoying a significant windfall, and they

have one man to thank: President Donald Trump.

Following weeks of trade tensions and verbal spats between

the North American neighbours, it might seem surprising that

Trump's policy whirlwind is offering Canada a boost.

But that is the thing about global trade networks. When you

make one change, it can have a cascading effect with many

unintended consequences - and beneficiaries.

Canada, the world's fourth-largest crude producer, supplied

U.S. refiners with around 4 million barrels per day in 2024,

roughly half of total crude imports for the world's biggest oil

consumer.

Canada sends around 90% of its oil exports to the United

States, which is mostly shipped via pipelines from the western

province of Alberta to land-locked refiners in the U.S. Midwest.

The future of this interdependence was thrown into turmoil

at the end of last year, when the incoming U.S. president vowed

to impose tariffs on America's northern neighbour, a promise he

briefly made good on last month, before rowing back most of the

tariffs within a few days.

The main Canadian crude grades typically trade at a discount

to benchmark U.S. crude due to transportation costs and its

grade, and the tariff threat initially caused that gap to widen.

But in recent weeks, the discount for Western Canada Select

(WCS) delivered in Hardisty, Alberta has steadily shrunk,

hitting $9.75 a barrel this week, the smallest since late

November 2020, according to LSEG data.

This WCS strength partly reflects traders' confidence that

Canadian oil exports will continue to be exempt from U.S.

tariffs, according to Rory Johnston, founder of Toronto-based

consultancy Commodity Context. While Trump plans to announce new

tariffs on unspecified countries on April 2, few expect this to

include Canadian crude.

VENEZUELA

But the reduction in the WCS discount is also linked to

Trump's recent actions against Venezuela. The administration

revoked a production licence for Chevron ( CVX ), which imported 210,000

bpd of heavy-grade Venezuelan oil into the United States last

year, and slapped a tariff on countries buying oil from Caracas.

As it happens, Canadian crude is a good substitute for the

Venezuelan grade, meaning it is now in high demand from U.S.

Gulf Coast refineries that require heavy crude.

Canadian producers have also benefited from completion last

year of the Trans Mountain pipeline expansion, which raised its

capacity to 890,000 bpd. The pipeline offers producers the only

export route to international markets bypassing the United

States. Crude exports from Vancouver are set to rise to a record

of 643,000 bpd in March, of which 45% are set to go to the

United States, according to Kpler data.

Canadian crude producers may not enjoy this windfall for

long as OPEC+ producers are expected to bring more oil into the

market in the coming months, including heavy grade crude.

But what will also likely be coming in the next few months

is more energy market volatility driven by the U.S.

ever-evolving trade policy. And given Canadian oil producers'

geographic location and position in the market, they may

continue to benefit from this turmoil, even if that is not what

the "America First" agenda has in mind.

The opinions expressed here are those of the author, a

columnist for Reuters

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(Writing by Ron Bousso; editing by David Evans)