Tuesday, March 27, 2007
Here's a quick question: "Who sells the U.S. more oil, Kuwait or the U.S. Virgin Islands?"
Yes, it's a trick question...
We import more than twice as much oil from the U.S. Virgin Islands than from Kuwait. In fact, I think most American's don't realize exactly where our oil imports come from:
Now here's the important question for us as investors: Which one of these countries looks like a stable, long-term partner... and deserving of a big investment?
If you said none of the above, you wouldn't be far wrong in my estimation. With a few exceptions, the list reads more like a who's who of political strife, graft, and corruption than a roster of where I want to do business.
However, the U.S. is in a bit of a pickle when it comes to oil imports. A radical windbag leads our fifth-largest supplier, our fourth-largest supplier is on the brink of civil war, and our third-largest supplier is fading fast.
Thanks to a production decline in the giant Cantarell Field, Mexican production fell by half last year... and that's just the beginning. Mexico's oil fields are like a car that hasn't had an oil change in 100,000 miles. We just can't rely on them anymore.
While many politicians want us to believe the answer is Iraq, I'm skeptical. I'm also wary of Russian partnerships. I don't see Russia dealing fairly when it comes to oil. At least Venezuelan president Hugo Chavez comes right out and says he hates the West. The Russians use magically disappearing "environmental concerns" to blackmail concessions from international oil companies.
As you probably guessed, I think our long-term partner is Canada. Canada is politically stable and contains the world's second-largest oil reserves, most of them in Alberta's tar sands. These heavy-oil deposits have an extraordinarily long production life ahead of them. How many giant oil deposits can you say will last over 100 years? Well, we can confidently say that about Alberta's tar sands.
In the S&A Oil Report, I've recommended several companies that are related to Canadian oil and heavy-oil production... and I think you may see Big Oil looking to make acquisitions there in the near future. The long reserve life and friendly politics are simply too tempting for them to ignore.
If you're looking to do more research on oil-sands plays, I recommend starting with some of the biggest players: Suncor (SU), Petro-Canada (PCZ), Western Oil Sands (WTO.TO), and Canadian Oil Sands Trust (COS-UN.TO).
These companies, plus the refiners and pipeline businesses that help get that oil from Alberta to your fuel tank, are where investors will make safe, long-term gains in oil.
Infrastructure plays at new 52-week highs: Kennametal (drill bits & cutting tools), Lafarge (cement), U.S. Steel, and Layne Christensen (water drilling).
Pipeline companies still soaring: Williams Partners, Energy Transfer Partners, TransMontaigne, Enbridge, Kinder Morgan, and Valero LP all hit new highs.
Mexican stocks surge: Grupo Radio Centro and Telefonos de Mexico both at new 52-week highs.