The Bull Market In Oil Nobody Is Appreciating

However, even with high heavy oil prices, the price spread between Low Sulfur Oil – LSO – and High Sulfur Oil – HSO (which is heavy oil) says most ship owners will buy closed loop scrubbers and continue to buy HSO.

WHAT DOES THIS MEAN FOR HEAVY OIL STOCKS?

It means they are some of the fattest cash cows the energy market has seen in some years, yet valuations are still very cheap – often just over 3x cash flow.

Better still, many heavy oil producers with low production declines (and for oilsands producers – NO production declines!!!) are generating HUGE free cash flow – The Holy Grail that still evades the shale industry. Understand from this – these companies need to invest very little capital each year to maintain production, so if they aren’t chasing growth they are free cash flow machines.

As this heavy oil bull market continues throughout the year, look for the larger Canadian heavy oil stocks to be one of – if not the – best performing subsector in global energy.

Instinctively, investors wouldn’t expect it to be this way. Heavy crude is an inferior product and more difficult to refine.  And last year the discount for Canadian heavy oil made headlines around the petro-world – for all the wrong reasons.No new pipelines. Huge discounts – Canadian heavy oil traded under US$10/barrel at one point!!!

That’s what most investors who only pay scant attention to oil think about when they hear the words heavy oil – high cost, low price, curtailing production… all negative.

But the facts – and the economics – have changed for Canadian heavy oil stocks. Quickly.

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