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

Welcome to Energy Source, coming to you from London where the International Energy Agency has just cut its expectations for oil demand growth this year by about a third — 300,000 barrels a day — due to the trade turmoil that has followed US president Donald Trump’s “liberation day” announcement on 2 April.

This week’s main item is a dispatch from Canada where Ilya Gridneff reports why the country’s oil industry is upbeat despite Trump’s trade war.

First, I wanted to direct you to a Financial Times investigation about a Sicilian refinery, trading giant Trafigura and a Greek shipping billionaire. It’s a cautionary tale about the rushed deals that were done after Russian companies were forced to pull back from Europe following Moscow’s 2022 full-scale invasion of Ukraine, highlighting the risks of handing strategic assets to little-known buyers.

The refinery, which is Italy’s largest, was acquired by a Cypriot fund in 2023 in a deal that was approved by the Italian government. But neither the fund nor Rome publicly identified its investors at the time. The FT subsequently reported that one of the investors was a foundation controlled by family members of Franco-Israeli mining magnate Beny Steinmetz, who is appealing a corruption conviction in Switzerland.

Our article reveals that in fact most of the money came from someone else — a shipping billionaire named George Economou, whose TMS Tankers was one of the biggest seaborne transporters of Russian oil following the invasion.

Now relations between Economou, Steinmetz and Trafigura — which backed the deal with working capital and a supply and offtake agreement — have soured, putting the future of the refinery and its employees at risk. Do read it, if you haven’t already.

Now over to Ilya. Thanks for reading, Tom.

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Why Canada’s oil producers see opportunity in Trump’s trade war

Canada’s oil industry is doing remarkably well despite Trump’s global trade war, the recent meltdown in global stock markets and a sharp fall in crude prices.

That was the message conveyed when the Canadian Association of Petroleum Producers (CAPP) met in Toronto last week for an investor conference, where members said that the US turmoil offered a “generational opportunity” for Canada’s oil and gas sector.

“The fundamentals are strong, the business case is there,” said Lisa Baiton, the chief executive of CAPP, who told Energy Source the upside to Trump’s chaotic policymaking was that it has forced Canada as a nation to look to the energy sector to diversify its economy.

“The current trade war has turned Canadians’ full attention towards our energy advantage.”

It is a key topic in Canada’s election campaign as both Prime Minister Mark Carney and Conservative party opposition leader Pierre Poilievre pledge to harness the country’s energy abundance as a way to boost the economy.  

Both men want to ramp up energy-related infrastructure, a key bottleneck that has left Canada’s oil industry overly reliant on the US market.

Trump’s trade war on Canada has renewed calls for pipelines, and fast-tracking oil and gas projects for new customers as the country faces a series of US levies, including a 10 per cent tariffs on Canadian energy supplies in March. Trump subsequently paused these tariffs.

“The current administration recognised the importance of Canadian oil and gas as part of an integrated supply chain that’s been built up over 150 years with a zero tariff on USMCA-compliant goods,” Baiton said.

“I think what everybody is learning is that this administration is very hard to predict,” she said when asked if CAPP members had “buyers’ remorse” after initially expressing support for a Trump presidency. The US president campaigned on a slogan to “drill, baby, drill”.

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

But not all oil is equal. A barrel of oil’s price depends on the type, where it’s produced, and where it’s purchased. And Western Canadian Select, a heavy crude oil, is having a moment despite its own price drop in early April.

Canada sends 97 per cent of its crude oil to the US, where it is bought and sold at a “discount” price as Alberta mostly produces oil of a lower quality than Brent or West Texas Intermediate, the US benchmark. It also costs more to transport via pipelines to US refineries.

At the time of writing WCS crude is being traded at about $10 a barrel less than WTI, the narrowest gap since 2020. The differential more commonly sits at about $13 per barrel but has frequently risen much higher than that.

Peter Tertzakian, founder of ARC Financial Corp, Canada’s largest energy focused private equity manager, said higher differentials had “sharpened the pencils” of Canada’s oil and gas executives who have “needed to become more efficient”.

“They have adapted to reduce their operating costs per barrel.” As a result Canadian companies could withstand oil at $60, or lower, he said.

A weak Canadian dollar, which has dropped due to US tariffs, is also benefiting those in the industry that have more scope to pay down debt and cover running costs and salaries from revenue earned in the stronger US dollar.

The stock market’s downturn due to Trump’s trade war is also an opportunity for Canada’s cash-positive companies to buy back discounted stock that reduces their levels of dividend pay outs. 

But the main reason Canadian oil doing so well is the Trans Mountain Expansion pipeline (TMX) that opened in May last year.

“TMX has been a game-changer. TMX has shrunk the differential,” said Brian Schmidt, chief executive of Tamarack Valley Energy. “We budgeted at C$14 ($10) [per barrel] but now it is C$10.”

After a decade of disruptions and costing C$34bn, four times over budget, TMX is transporting record levels of oil to the US and helping the industry generate huge profits. 

“TMX was the single largest addition to Canadian egress in more than a decade, without which the western Canadian industry would already be facing an acute egress crisis and tariffs would have been far down the list of their concerns,” said Rory Johnston, founder of Commodity Context, an oil research business and University of Toronto lecturer.

He added: “TMX facilitated the shrinking of Canadian crude differentials to their extremely strong current levels, but even more importantly it dramatically lessens the risk of damaging differential blowouts.” (Ilya Gridneff)

Power Points

• United Arab Emirates-based Sidara has made a £242mn offer to buy the troubled British oil services and engineering business Wood Group. If successful, the bid would surely constitute a bargain. Less that a year ago it offered £1.5bn for the business before walking away.

• This Thursday’s AGM at BP is set to be eventful. Leading shareholder Legal and General plans to vote against the re-election of chair Helge Lund even though the Norwegian has already announced his planned departure next year.

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

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.