When I think of crude oil prices, 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 Lac-Mégantic.
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 Pipelines (TRP). 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 Enbridge’s (ENB) 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 2014.
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 Suncor Energy (SU). 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.