Why now may be the time to buy Canadian heavy oil producers

Jonathan Ratner | Jan 28, 2013 9:54 AM ET | Last Updated: Jan 29, 2013 8:56 AM ET
More from Jonathan Ratner | @fpinvesting

Given all the negative sentiment surrounding Canadian heavy oil these days, now might be the opportune time to add exposure.

Refinery outages, supply growth and pipeline divisions continue to support record-high pricing differentials, with Western Canadian Select (WCS) crude oil prices trading at a more than US$40 per barrel discount to its heavy oil peer, Mexico’s Maya blend, despite their similar grade quality.

However, Calgary-based energy analysts Desjardins Capital Markets are telling clients to consider this contrarian trade as a result of several upcoming catalysts in the next couple of years.

One is BP’s Whiting refinery on the southwestern shore of Lake Michigan coming online late in the summer of 2013.

Another event that could lead to more narrow differentials for WCS is the late-2013 expected completion of TransCanada’s Gulf Coast pipeline, which runs from Cushing, Oklahoma to Nederland, Texas.

Meanwhile, Enbridge’s Flanagan South pipeline and the construction of a twin loop for its Seaway pipeline are both due to be completed in mid-2014.

The analysts also noted that rail utilization is continuing to ramp up among Canadian heavy oil producers.

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