Making Sense Of The New Balance In Crude Oil Prices [Chevron Corporation, BP plc (ADR), Total SA (ADR), CNOOC Ltd (ADR)]

The Key Is Finding the Right Kind of Sizzle

The security and reliability of certain small producers in the United States and western Canada provide a ready-made list of good investment targets.

As I’ve observed before, these producers have the advantage of known reserves, stable markets, lower operating costs, fully developed infrastructure, and significant experience in basins and regions they know well. These types of companies make for a nice offset to the uncertainty found abroad.

In addition, as pricing remains range-bound, other elements in the upstream-to-downstream process will benefit, including select pipeline and midstream service providers, along with partnerships and related structures that control critical assets.

First among the “critical asset” category are the limited partnerships established by larger U.S. refineries that own and run transport, gathering, terminal, and storage facilities for the huge volume of crude being shipped to the main processing locations.

This category of refinery asset spin-offs and restructuring reflect a newer phenomenon, especially when it comes to the crude oil transport between Canada and the United States.

As the lower forty-eight moves toward essential energy independence, Canada will be providing more crude oil on the import side. And the difference here is staggering.

From having to import almost 70% of its daily needs just a few short years ago, it is believed that American crude oil imports will drop to only about 30% within the next decade (or even sooner by some estimates).

That sets the stage for continued increases in transit by rail for Canadian crude headed south and a growing use of internal transport by rail tanker cars inside the United States, especially with major refinery networks serving as collective end users.

There are also some interesting opportunities developing internationally (i.e., outside North America).

The focus here is going to be on where the company is located, rather than where it is drilling. For example, operators whose stock is traded on the London Stock Exchange – especially the LSE’s AIM (Alternative Investment Market) – with field projects in the Caspian basin, East Africa, and other global locations are going to see a nice pop.

Normally, these opportunities are beyond the reach of the average American retail investor. But not for long. In fact, I will have some exciting news on this front coming shortly. So stay tuned.

But once again, putting geopolitical uncertainties aside, the crude oil balance will dictate specific targets in this kind of investment environment.

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