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2 Reasons Every Investor Should Buy Canadian Oil

Written by Keith Kohl
Posted July 10, 2019

Canadian crude is the story you won’t hear about in today’s media.

I’ll be the first to confess that I've been getting caught up in the headline hype recently. Last week, we talked about how the escalating tensions with Iran threaten more than one-fifth of the world’s oil supply at the Strait of Hormuz.

To be fair, it’s kind of hard to ignore the geopolitical chaos that reigns over the Middle East.

I want you to look beyond that mess today.

Instead, let’s focus on an oil boom that should be on every investor’s radar right now.

If you’re like me, then your gaze immediately started to drift toward the Permian Basin. After all, it’s a little hard to dismiss an oil region that is now producing more oil than all but one OPEC member.

Texas’ oil output has surpassed 5 million barrels per day, and it’s only going to head higher in the coming years.

But let’s resist the temptation of the Lone Star State, if only for the moment.

Truth is, there’s a small group of oil stocks that have beaten the performance of the biggest Permian drillers so far in 2019.

And THEIR run is just beginning.

Let me explain...

2 Reasons Why Every Investor Should Buy Canadian Oil Stocks

To say we’ve become addicted to Canadian crude would be a sore understatement.

Since 1980, our oil imports from Canada have grown from just 455,000 barrels per day to more than 4.4 million barrels!

The fact that our thirst for Canadian crude has grown so dramatically during what is unquestionably the biggest oil boom in U.S. history should be telling.

And yet most people don’t realize how dramatically Canada’s crude supply has evolved.

Between 2009 and 2019, Canada’s oil output has nearly doubled.

Of course, roughly 63% of Canada’s oil production was considered light oil a decade ago, with heavier oil accounting for the rest.

By 2014, the ratio of light oil in the country’s production mix had fallen to 55%.

Today, it’s down to half... and it’s only a matter of time before that gap widens further.

Few areas have been hit harder by the U.S. shale boom than the Canadian oil sands. The flood of tight oil unleashed onto the market has put immense pressure on Canadian oil companies. 

Sure, we can take one look at the state of Venezuela’s failing oil industry and truly see how bad things can get.

Not only is Venezuela’s oil output heading toward zero, but it feels as if the 296 billion barrels of proven reserves it holds will never see the sunlight and stay buried underground forever.

Canada, however, is a different story.

Most people don’t realize that with 175 billion barrels of proven reserves, Canada holds the third-largest proven oil reserves on the planet.

Virtually ALL of those reserves are found in the bituminous sands of Alberta.

Look, I know the first picture conjured by most people involves the massive surface mining operations run by companies like Suncor — the ones that can be seen from space.

Those are incredibly intensive — and costly — operations.

In 2004, production from the oil sands breached the psychological benchmark of a million barrels per day.

It took another decade to reach 2 million barrels per day.

By 2027, production in the area will top 4 million barrels per day.

But what everyone seems to forget is that 80% of the bitumen (think of heavy oil, with the same viscosity as molasses) in the oil sands area is too deep to be mined.

In other words, the true wealth of the oil sands is in the companies that can utilize other, less environmentally intensive methods to extract the oil from Alberta’s soil.

For us, in-situ recovery has always been the name of the game.

Naturally, the veteran readers of our investment community have seen this transition coming for a long, long time.

After watching Canadian crude prices bottom recently, one can’t help but take advantage of the situation.

Today, the largest SAGD producer in the oil sands is Cenovus Energy (NYSE: CVE). In 2017, the company jumped at the opportunity to pick up ConocoPhillips’ interests in the oil sands; the move cost it nearly $18 billion.

That move will pay off in spades for shareholders over the long run.

So far in 2019, Cenovus has outperformed some of the biggest Permian Basin oil companies, including Pioneer Natural Resources.

And even though it’s becoming more important for the heavy oil refineries in the U.S. Gulf Coast, the future of Canadian crude isn’t in the United States.

It’ll be in China.

We’ll talk about that next week.

Until next time,

Keith Kohl Signature

Keith Kohl

follow basic@KeithKohl1 on Twitter

A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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