When I think of crude
, I usually think in terms of Brent and West Texas Intermediate.
Brent is what they pay per barrel across the pond and WTI is the
price in Cushing, Oklahoma. Recently, the spread between the two
has shrunk to about $7 per barrel. With all the talk of the
Alberta sands and Keystone XL pipeline I've been introduced to
another measure of crude; West Canada Select.
As the WTI-Brent spread has narrowed, so has the WTI-WCS
spread. Last year the spread stayed between $9 and $42 a barrel,
but so far this year has tracked between $17.90 and $25.25. A
major reason for this is the potential development of the
Keystone XL pipeline.
A hotly debated topic stateside, the Keystone XL would connect
the oil sands of Alberta to the US Gulf. Proponents of the
pipeline site the job creation and economic benefits the project
would bring. Detractors point out the environmental cost as well
as the danger associated with pipelines. The construction phase
of the pipeline would bring 42,000 temporary jobs but less than
100 permanent positions after the pipeline is in place.
Regardless of whether or not the pipeline is approved by
President Obama there has been increased trade between the WCS
hub and the US Gulf Coast. Most of this capacity is moving by
rail. While opponents of Keystone site the danger associated with
the pipelines, the danger is greater for this method of
transport. Last July, 47 people died when a train carrying 72
tanker cars loaded with crude oil exploded in the Quebec town of
The tide seems to be changing in the argument and it looks
like the pipeline project may finally gain approval this year. If
and when it does, there are a few companies that stand to
benefit. The most obvious of these is
). TransCanada would be the company building the pipeline, which
would run 1,179 miles and carry up to 830,000 barrels of oil per
day. The pipeline could help TransCanada score better than the
Zacks Rank #5 (Strong Sell) is currently sits at.
The technical picture shows a range bound stock that has, for
the most part, traded between $42 and $46.50. Currently we sit
smack in the middle of that range. The 25x5 SMA has been sideways
but now showing a slight upward slope. Given the fundamental
backdrop and the stock's range bound pattern, Keystone news will
probably be what the stock needs to break higher or lower. I'd
put this on the breakout radar in the future.
If recent regulatory rulings are any indication for Keystone,
then news of
) conditionally approved application for a reversal of one of its
pipelines is good news. Canada's National Energy Board approved
ENB's $400 million "Line 9B Reversal and Expansion" project. The
project will reverse the company's line to flow crude oil
eastward from Ontario to Montreal and expand capacity from 240
thousand barrels per day to 300 thousand barrels per day. The
reversal and expansion are expected to be in service by Q4
A Zacks Rank #3 (Hold), Enbridge's chart looks very similar to
TRP's, trading in a range for the last 9 months or so. Bouncing
between $40 and $45, the stock currently sits near the top of the
range at $44.44. The good news coming down from the National
Energy Board may be the catalyst needed to break above the $45
level finally. A break of this level puts the May 2013 high above
$48 well within range. The overbought stochastics confirm the
bullish price action and positive momentum in the stock.
A beneficiary of the Enbridge ruling and potential winner with
the Keystone pipeline is
). The additional access to inland crude as a result of the Line
9B reversal could add up to 25 cents per share in earnings. This
would help push Suncor above the Zacks Rank #3 (Hold) is
currently sports. Historically, Suncor's earnings have been
pretty steady but lacking much in the way of growth.
The stock has been dropping slowly over the course of the last
several months. After reaching a high near $37 Suncor has been
locked in a downtrend, trading as low as $31.30 before recovering
near $33. The stochastics are slightly oversold and may soon give
a bullish crossover signal. Trading within 50 cents of its 25x5
SMA at this point the stock could go either way. The 25x5 often
times has provided upward resistance for the stock.
ENBRIDGE INC (ENB): Free Stock Analysis
SUNCOR ENERGY (SU): Free Stock Analysis
TRANSCDA CORP (TRP): Free Stock Analysis
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