The new supply will help reduce higher global prices of Brent in London, while reducing the spread against WTI crude, which is priced in New York.
The U.S. Energy Information Administration (EIA) forecasts that the WTI-to-Brent discount, which reached $20 per barrel in February 2012, will narrow to $8 next year. But it won’t be due to an increase in Brent or WTI price. As greater production in the U.S. continues, and geopolitical issues from 2013 begin to fade, new Iranian supply will help reduce demand concerns in China and India.
2014 Oil Investing Trend No. 3: Rise of Rail Transport in the Northwest
The growth of oil shipments by rail was one of the biggest stories of 2013.
And that trend will only accelerate in 2014, making midstream investments in railcars and storage a favorable play. In the face of the Obama administration’s refusal to approve the Keystone Pipeline, TransCanada has now proposed increases in rail shipments to remove the glut of oil in Alberta, Canada.
Rail transport is thriving up north. In November, Canadian National Railway (NYSE: CNI) announced its recent quarterly revenue from crude transports increased 150% over last year. We’re expecting that revenue to jump for all participants in the industry.
And it’s not just Canada. Rail projects will expand from North Dakota and the Bakken region in 2014. According to the North Dakota’s Department of Mineral Resources, up to 90% of the region’s crude oil will ride out of the region on rails next year. This provides a better boon to producers seeking higher prices in a variety of spot markets across the country.
And it provides a nice midstream play for investors looking to cash in, particularly in high-yield energy transportation and storage companies.
2014 Oil Investing Trend No. 4: Politics on the Roof of the World
Without a doubt, the biggest geopolitical story outside of Iran is taking place in the Arctic Circle. According to the EIA, the Arctic Circle contains 15% of all undiscovered oil and 30% of all undiscovered natural gas. But who owns all those hydrocarbons?
That’s going to be up to the United Nations in 2014 and beyond. Canada recently shocked the world by claiming that the North Pole and various uncharted areas are part of its sovereign territories.
Russia isn’t having that argument. In fact, President Vladimir Putin recently announced he will militarize the Arctic Circle and reopen Soviet bases in the Arctic Ocean in order to flex the nation’s muscle over oil politics.
Next year, the Arctic story will dominate the oil world, as global producers rush to survey available fields and begin to develop existing technologies to make it possible to capture the black gold sitting beneath more than a mile of icy waters.