Huge investing opportunity may exist in playing Canadian oil market
A rare occurrence now happening on oil markets might be a huge opportunity for investors who play it right, says Tim Pickering, president and chief investment officer at Auspice Capital Advisors Ltd.
Pickering said Canadian crude prices are currently in “backwardation,” which means the future price is expected to be lower than the spot price, but every other crude oil market in the world is in contango, meaning the future price is expected to be higher than the spot.
“For long-term investors in oil, this is a positive thing because it means they will not lose money as the market rolls over time,” he said in a commentary to clients.
Pickering, who recently launched CCX, an exchangetraded fund that tracks Western Canadian Select, Canada’s benchmark heavy-oil stream, said it is not normal for Canadian oil to be in backwarda- tion when others are in contango, but thinks it comes down to a supply and demand issue.
He points out that “a lot of supply” was lost in May and June due to seasonal upgrader turnarounds and forest fires, while U.S.-based refiners are running strong.
“However, I think that the market sentiment is also weighing in here,” he said. “There are many unknowns in Alberta, and they may not be positive for Alberta. As such, investments are in question and the curve is reflecting less demand/or more supply going forward.”
Pickering said investors can take advantage of the situation in the short term by being long Canadian crude via CCX and “if you want to hedge out WTI, sell a WTI ETF (or buy Horizons inverse HOD), or (if an institutional trader) short futures.”