Last week we spoke in broad terms about the importance of the Canadian oil supply for America in a world growing increasingly fractured along cultural/religiouslines.
We're particularly interested in the oil sands of Alberta, an area that's seeing increased investment dollars now that higher crude prices are making additional research and exploration possible.
Of course,where the money flows, so does politics. It's worth it to have a brief look at the politics surrounding the oil sands.
In truth, the political picture is now in flux. President Obama's approach to the 'revolutions' now taking place in the Arab world is putting him at odds with a number of current regimes, not least of which includes long time ally Saudi Arabia, whom the President appears to be alienating in serious fashion. And that doesn't bode well for the price of imported crude for the near term.
It also puts local supply at a premium.
Roughly 70% of the world's oil supply is controlled by OPEC, and of the remaining 30%, a full half is found in Alberta's oil sands. That makes it almost inevitable that the area will be exploited despite all the environmental dangers involved in extracting and processing the product.
President Obama recently indicated that his administration would have to 'study the 'destructive' effects' of the oil sands' business before granting permission for along-awaited pipeline called 'Keystone XL' to proceed to bring more than 500,000 barrels a day across the border.
As far as we can tell, the current State Department investigation into the matter is no more than a bone being thrown to environmentalists, and that there's really no intention to impede the future flow of oil from what Obama terms the most "steady and stable and reliable" source of oil for America.
In the same way that the President reversed an earlier decision regarding deep water drilling in the Gulf of Mexico, he'll most surely authorize Keystone and subsequently spin it for the projected $20 billion it will pump into the American economy and the $5 billion in taxes it will also shoot into state coffers along the way.
The Way of the Sand Separators
That said, here's a look at just one of the players we mentioned last week that we feel is worthy of immediate attention.
Suncor Energy Inc.(NYSE:SU) has a $68 billion market cap and derives the majority of its revenue from its oil sands' projects. They've been active in the Canadian oil sands extraction business since the late 1960's and have almost tripled total revenues since 2005. A look at the monthly chart for the last decade also points up some interesting recent developments.
Look here:
Before we dive in, it should be said that the longest term charts are generally a more reliable technical tool than those of a shorter-term nature, though, of course, they offer more belated trading signals. That said, the above monthly chart shows the latest rise in Suncor stock above its three year, rising trendline and its long term moving averages. Both good signs.
More important, however, may be the action of the Relative Strength Index and MACD indicators, both of which are now in bullish mode for the first time since the massive crude correction of 2008. As of this month, Suncor's monthlies are clearly flashing 'buy'.
Similar signs can be found on the weekly chart, too. Check it out:
Here, a rising trend channel is firmly in place, and the stock's price sits roughly in the middle of that channel. Moreover, Suncor's shares are now six weeks clear of all their moving averages (see red box, right side of chart).
All of the foregoing does not tell us that the stock is now going to rise. On the contrary, it could be there's are trenchment in the works that brings the SU lower by as much as 10% to the $40 range before the longer term trend is resumed.
That said, there's much to get excited about here.
A look at Suncor's production profile for the next ten years shows the following:
With significant new projects coming onstream nearly every year for the next decade and the dual prospects of 'peak oil' and a 'clash of civilizations' unfolding before us, we look very favorably on Suncor's chances of appreciating faster than the average western integrated producer.
Many happy returns,
Matt McAbby, Senior Analyst, Oakshire Financial
