Oil Play Beckons as Middle East Burns

05/19/2011 10:17 am EST


Curtis Hesler

Editor, Professional Timing Service

With unrest in the Arab world keeping oil prices on the boil, Crescent Point Energy’s reserves in western Canada have never looked better, writes Curtis Hesler in Professional Timing Service.

Crude oil prices will increase in the future, due to depletion of supply, global political instability, monetary malfeasance, and civil unrest in the Middle East and North Africa.

There will, of course, be the inevitable ups and downs in the short-term price trend. But a year from now, and a year beyond that, crude oil will be selling for ever higher prices—especially in terms of depreciating US dollars.

On the geopolitical front, unrest in Yemen disturbs me more than most of the other strife in the area. Yemen is on the east side of the Straits of Bab el Mandeb. This is an important choke point into and out of the Red Sea, which could come under the control of al-Qaeda. The rebels are not always the good guys.

If al-Qaeda gains control in Yemen—or even if they don’t—they may eventually gain the ability to disrupt a core pipeline that runs along the Yemen-Saudi border. This carries 4 million barrels a day. If millions of barrels a day were to be taken off the market, even temporarily, crude prices could easily hit $200 or more.

The key to energy investing at this point in the commodity bull is to stay with North American production and out of harm’s way in Africa and the Middle East. Problems there will assist in keeping crude oil prices high, but investors need to have money placed in companies that will continue to produce.

Since the US market is of paramount importance, we need to be invested in companies that can feed US demand unimpeded. The best sources will be domestic and Canadian production.

Along those lines, we have a position in Crescent Point Energy (Toronto: CPG).

Crescent Point participates in the Bakken shale area, which is one of the more prolific shale deposits in the US and Canada, and it is trading near our downside buy price of C$43. [Shares of the crude oil producer rose to C$45.42 Thursday morning. At that price, the 23-cent monthly dividend works out to an annual yield of 6.1%—Editor.]

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