Energy & Utilities Roundup: Market Talk

The latest Market Talks covering Energy and Utilities. Published exclusively on Dow Jones Newswires at 4:20 ET, 12:20 ET and 16:50 ET.

1052 ET – U.S. Gulf Coast refiners, with years of experience building and optimizing refineries to handle heavy Canadian crude, stand to benefit in the event changes in Venezuela restore output of that country’s heavy, sour oil, Siebert Financial’s chief investment officer Mark Malek says in a note. Refining shares are sharply higher after the U.S. ousted Venezuelan President Nicolas Maduro. Heavy crude requires sophisticated refining capacity and massive capital investment, and companies like Valero, Phillips 66, Marathon Petroleum and Chevron have “a structural advantage that has been decades in the making,” Malek says. Since heavy crude almost always trades at a discount to light, “if you can process it efficiently, that discount turns into profit,” he adds. “Add Venezuelan barrels into that same ecosystem, but now under U.S. operational and security influence, and the advantage compounds.” (anthony.harrup@wsj.com)

0953 ET – An increase in oil production in Venezuela following the U.S. government’s removal of President Nicolas Maduro would be a significant boost for U.S. refiners, since much of the Gulf Coast refining capacity is designed for heavy crude like the oil in Venezuela, say Raymond James analysts. Valero has the most capacity in the U.S. Gulf, followed by Marathon and Phillips 66, the analysts say. Valero surges 9%, while Marathon gains 5.4% and Phillips 66 jumps 6%. Mizuho analyst Nitin Kumar says that Gulf Coast refiners could see a boost in their near-term margins from the more reliable availability of crude oil. (nicholas.miller@wsj.com)

0946 ET – Venezuela’s oil production is subject to several wild cards, particularly how fast a government transition can take place and how quickly and willingly multinational oil companies re-enter the country, say Raymond James analysts. In a bullish case, production rises to more than 2 million barrels per day by 2030, trending toward 3 million thereafter. But that can only be realized if “there is enough security and incentive for U.S. (and allies) oil companies to re-enter Venezuela,” the analysts say. Additionally, if a transition is delayed and the blockade remains intact “production shut-ins would likely be needed,” which could lower production by nearly 0.5 million barrels per day, according to the analysts. (nicholas.miller@wsj.com)

0932 ET – It will be tough for Venezuelan oil to displace Canadian crude, at least in the short term, but the threat does highlight how vital trade diversification is for Canada, Servus Credit Union’s Charles St-Arnaud says. Canada now exports about 4.5 million barrels a day to the U.S. versus the 1 million barrels daily currently produced by Venezuela, which would need significant investment to boost that. St-Arnaud adds geography favors Canada, which sends the bulk of its crude to refineries in the U.S. Midwest. He says the cost of sending tankers from Venezuela to the Pacific Northwest reduces the likelihood of substitution, though the roughly 10% of overall Canadian oil exports that head to the Gulf Coast may be vulnerable. (robb.stewart@wsj.com; @RobbMStewart)

0925 ET – Economists and commodity analysts argue that US-led events in Venezuela should trigger greater urgency in Canada to build another crude-oil pipeline connecting oil-heavy Alberta with the Pacific Coast. Derek Holt, economist at Bank of Nova Scotia, says a new Pacific-bound pipeline would be prudent, amid President Trump’s push to access Venezuela’s over 300 billion barrels of oil reserves. Trump may push for Venezuelan oil exports bound for China to be diverted to the US, “thereby crowding out opportunity for Canadian oil in the US and opening up opportunity to export to Asia,” Holt says. (Paul.Vieira@wsj.com; @paulvieira)

0923 ET – U.S. oil companies might be reluctant to get back into Venezuela having had assets in the South American country expropriated before, David Oxley of Capital Economics says in a note. And then there’s the matter of abundant global supply keeping prices down. “Even if the political environment backdrop was more predictable, in a world already awash with oil, the business case for significantly ramping up drilling in Venezuela is far from strong—particularly given the estimated high cost of extracting Venezuela’s ‘heavy’ oil reserves,” he adds. The case of Venezuela “further highlights the tension between President Trump’s desire for cheap oil and an oil price high enough to deliver the required returns for oil firms.” (anthony.harrup@wsj.com)

0859 ET – President Trump wants U.S. companies to dive into Venezuela’s oil reserves, but a ramp-up in the country’s oil production could take awhile, analysts say. “While some forecasts suggest production could rise by a half or a million barrels per day within the next 12 months, we believe this will take more than two to three years and prior peak production levels may never again be reached,” say Melius analysts James West and Sanskriti Reddy. Chevron is the company best-positioned to increase its operations in Venezuela, “but any new investment would take time, capital and assurances of political stability,” says Mizuho analyst Nitin Kumar. (nicholas.miller@wsj.com)

0841 ET – The U.S. actions in Venezuela create near-term winners in Chevron and SLB, which have continued to operate in the country, say Melius analysts James West and Sanskriti Reddy. SLB, the largest oil services company still in Venezuela, rises 7% premarket, while Chevron gains 6%. Eventually, other oil services companies such as Baker Hughes, Halliburton and Weatherford and the U.S. majors and independents including ConocoPhillips, Exxon Mobil and Occidental Petroleum will likely return to Venezuela. “This U.S. administration is likely to prioritize U.S. companies; this is not a repeat of Iraq,” the analysts say. (nicholas.miller@wsj.com)

0838 ET – Investors in the bonds of the state-owned Petroleos de Venezuela (PDVSA) likely face improved prospects following this weekend’s arrest of the Venezuelan president by the U.S., Morgan Stanley strategists say in a note. Venezuelan bond prices are likely to rise in the near term “as markets price a higher likelihood of a debt restructuring and also a potentially higher recovery rate”, the strategists say. A PDVSA U.S. dollar bond maturing in November 2026 rose to 30 cents from 26 cents, Tradeweb data show. (miriam.mukuru@wsj.com)

0805 ET – A significant increase in Venezuelan oil production following the ouster of President Nicolas Maduro is likely to take “years, not months” given technical limits and the absence of a stable investment climate, analysts at Citi Research say in a note. The developments could eventually be bearish for oil market balances, with potential supply upside in 2027/28, they say. But in the near term, “we are likely to continue losing Venezuelan barrels from the global market, a net bullish factor, until a deal is done between the U.S. administration and the current (or future) leadership of Venezuela.” Oil supply risks remain high enough to support $60 a barrel Brent over the coming weeks, they add. Brent is up 0.9% at $61.32 a barrel and WTI is gaining 1.1% at $57.94. (anthony.harrup@wsj.com)

0803 ET – Offering European oil majors stakes in Venezuelan oil fields would help placate opposition among European leaders to President Trump’s intervention in Venezuela, Panmure Liberum’s Ashley Kelty says. Should France’s TotalEnergies or Spain’s Repsol get a big opportunity in Venezuelan fields, it will be unlikely to hear objections to Trump’s actions from their national governments, he adds. TotalEnergies shares trade flat at 56.05 euros while Repsol’s rise 2.4% to 16.81 euros. (adam.whittaker@wsj.com)

0802 ET – The U.S. capture of Venezuela President Nicolas Maduro could drive more geopolitical instability, increasing the risk premium to global oil prices, say KeyBanc analysts. “A hornet’s nest has been shaken, one we don’t see manifested in Friday’s closing WTI and Brent prices,” the analysts say, citing potential fallout in Mexico, Colombia and other nations in the region as well as emboldening Russia against Ukraine and China against Taiwan. “The recent news out of Venezuela could push multiple other vulnerable geopolitical situations into violence,” the analysts say. “We believe a larger risk premium needs to be applied to global oil prices.” (nicholas.miller@wsj.com)