The world wants more oil, but higher prices and growing demand are no guarantee Canada will reap the full benefits

Higher gasoline and diesel prices are squeezing consumers around the world, Canada included. Yet the same surge in crude oil prices is providing a welcome boost to Canada’s economy.

“Higher crude prices remain a net positive for Canada through stronger exports, incomes and government revenues,” TD economist Marc Ercolao wrote in a recent report. Ercolao also noted that Canada’s crude production provides an important buffer for incomes and government revenues when oil prices are high.

According to TD, Canadian energy exports have increased by an average of $4.5 billion per month over the past six months, bringing additional revenues to producers and governments. Diesel has become an increasingly important part of that trade. Its share of energy exports has more than doubled since the beginning of the U.S.-Israel war on Iran, reaching 13 per cent and generating more than $2 billion a month.

But higher oil prices are not good news for everyone. As Ercolao points out, expensive gasoline, diesel and other refined fuels reduce household purchasing power and raise costs for businesses. Even if crude prices decline, relief at the pumps may take longer to arrive because refined fuel markets remain under pressure.

The war involving Iran and disruptions to oil shipments through the Strait of Hormuz have exposed how vulnerable the world remains to interruptions in Middle Eastern energy supplies. Countries dependent on imported oil are looking more closely at reliable suppliers and alternative transportation routes. Canada, with its vast oil reserves and political stability, is well placed to benefit.

RBC analysts have identified Canadian heavy oil as one source of supply that could help meet international demand. The United States remains by far Canada’s largest oil customer, taking about 90 per cent of Canadian crude exports in 2025, according to the Canada Energy Regulator. The Trans Mountain expansion, which began operating in May 2024, has given producers greater access to Asian markets and reduced some of that dependence.

The change is already visible in trade figures. According to ATB Economics, Canadian oil exports to Asia averaged $515 million a month between June and October 2024, after the Trans Mountain expansion began operating. Before the expansion, those exports had been negligible.

Canada’s G7 partners have also recognized the importance of diversifying global energy supplies. In June, G7 leaders welcomed the potential for Canada to provide additional energy capacity to international markets in the coming years.

With international demand growing, Ottawa and Alberta are advancing plans for Pacific Link, a proposed pipeline capable of carrying one million barrels of crude oil a day from Bruderheim, Alberta, to a deepwater terminal near Delta, B.C. The project, which was designated a project of national interest on Oct. 1, would give Canadian producers another route to overseas markets, particularly in Asia. Its final route has not been settled, and questions about financing, approvals and construction schedules remain.

For decades, Canada’s heavy-oil industry has been dominated by massive oilsands developments requiring billions of dollars and years of construction before production begins. That makes it difficult to respond to sudden changes in international oil prices.

The Clearwater formation in Alberta offers a different approach. It produces dense, high-sulphur heavy crude similar to oil found in Alberta’s oilsands. In newer Clearwater developments, companies drill wells with several horizontal branches extending into the oil-bearing rock. This allows them to recover heavy oil without the expensive steam-generation facilities required in many traditional oilsands operations. Clearwater wells, by comparison, can be drilled and brought into production relatively quickly.

That flexibility has become especially valuable as global prices rise. Producers can increase drilling when conditions are favourable and reduce spending when prices weaken. Clearwater has attracted interest from major producers, including Canadian Natural Resources Ltd., although much of its development has been driven by smaller companies.

But while Alberta producers can respond more quickly to higher prices, they still face difficulties getting full value for their oil.

On Oct. 15, Western Canadian Select, the benchmark for Canadian heavy crude, was trading at a discount of $26.40 a barrel to West Texas Intermediate, according to Reuters.

Some discount is normal because Canadian heavy crude differs in quality from lighter oil and can cost more to transport and refine. But transportation constraints and competition from other heavy-oil suppliers can put additional pressure on the prices Canadian producers receive. Refinery disruptions, rising Canadian production and pressure on pipeline capacity have also contributed to the widening discount.

The removal of Venezuelan President Nicolás Maduro in January opened the way for renewed shipments of Venezuelan heavy crude to refineries on the U.S. Gulf Coast. That oil competes with Canadian crude of similar quality. With the United States still buying most Canadian crude, increased Venezuelan supply adds another competitive pressure on Canadian producers.

Canada has an opportunity to expand its role in international oil markets, but higher prices alone will not be enough. With competition for overseas buyers increasing, Canada’s ability to reduce its dependence on the U.S. market will be an important factor in how much it benefits from changing global energy conditions.

Toronto-based Rashid Husain Syed is a highly regarded analyst specializing in energy and politics, particularly in the Middle East. In addition to his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.