The first part in the “fiscal cliff” series has barely ended but the trailer for the sequel can already be viewed. The kids in congress still have a lot of fights to pick as well as scores to settle around automatic spending cuts, cutting spending and raising the debt ceiling. Of course, expect the same scenario with another 11th hour deal after exhausting all possibilities and scoring maximum political points on each other.
In the meantime, let’s enjoy the intermission which could see a seasonal uptick in our sector. A weak one in my opinion in light of disappointing natural prices (AECO spot is trading at less than $3/mcf in January – natural gas is still a play on weather), pipeline constraints and widening differentials on heavy oil prices (Dollarama grade oil I tell you).
On the other hand, I still see a positive second half in 2013 once the fiscal cliff sequel is behind us. Western Canadian Select prices (heavy oil benchmark) should improve thanks to new refinery capacity in the Midwest. Unfortunately, there is no silver bullet for the pipeline constraints but there is some positive news related to Keystone XL. Nebraska regulators said the reroute avoids most ecological areas which was a major concern that was stalling its approval. Seaway pipeline expansion (capacity up from 150,000 bopd to 400,000 bopd) is almost complete and should start relieving inventories at Cushing before the end of the month.
So where does one invest in our sector? One has to look beyond our borders in order to capture full Brent pricing and avoid this entire headache. But even then, remember that you are also capturing geopolitical risk which varies from one country to another. I do not expect to execute any new trades in H1 except for a position in MMT and NZ which will be discussed in the coming weeks.
How about you? what’s your take on 2013?
Update: Enbridge plans U.S. oil export expansion
Worsening oil bottleneck could cost Canada $1 trillion, shock government revenues (with video)
Grow Amaranth, Not Corn
Have a Great Weekend!