Question: Is it time to invest in Canadian Oil?
The Middle East has long been the world's main source for crude oil and natural gas. Yet, the region continues to be a tinderbox of hostile activity that threatens energy supplies and prices. The latest batch of tensions stem from eight days' worth of fighting in Israel's Gaza Strip. Hostilities between Israel and Hamas resulted in the loss of 167 Palestinians and six Israelis. While this current round of violence has ended in a temporary cease-fire, the fighting bookends the troubles in the region.
Guide To Oil And Gas Plays: We've got your comprehensive guide to oil and gas shales in North America.
Historically, dysfunction in the Arab world has been a steady constant. However, that violence has intensified over the past few years. Starting with the revolutionary wave of protests in December 2010, called the "The Arab Spring," the Middle East has been a hotbed of action. Various civilian uprisings have caused the ouster of several political regimes, including Libyan dictator Muammar Gaddafi and Egypt's Hosni Mubarak. Likewise, protests across Oman, Kuwait, Bahrain and Iraq have threatened global oil supplies. Back in September, protesters stormed various United States Embassies and compounds across Yemen, Egypt and Libya as the low-budget film "The Innocence Of Islam "- which pokes fun at Prophet Muhammad - made its way around YouTube.
All in all, these issues are enough to make any energy investor sick in the stomach - unless, they look to greener pastures elsewhere.
An Energy Powerhouse
The answer to the world's energy needs and investor profits could lie to our neighbors to the north, in Canada. Similar to the Middle East, the nation features a vast wealth of natural gas, oil and bitumen resources - all in an atmosphere that's much friendlier. According to the Oil & Gas Journal, Canada contained roughly 175 billion barrels of proven oil reserves at the beginning of 2012. Those proven reserves help rank the nation third in the world behind Saudi Arabia and Venezuela. Likewise, Canada's proved natural gas reserves amounted to 61 trillion cubic feet (Tcf) and the nation has an estimated 388 Tcf of technically recoverable shale and unconventional gas resources.
Those huge resources have helped push the nation into the No.6 spot for total worldwide production. Driven by the same widespread adoption of hydraulic fracturing and horizontal drilling techniques that have helped propel the U.S. forward, Canada has been able to unlock a virtual ocean of trapped oil and natural gas from within its shores. Also like the U.S., part of Canada's plan for using this bounty involves exporting excess inventory to the emerging world.
Canada seems to be making big progress in order to tap this opportunity. After the rejection of TransCanada's (NYSE:TRP) Keystone XL pipeline addition last January, the Canadian government has gotten serious about diversifying its energy exports. New export deals with China and Japan as well as an ambitious new liquefied natural gas (LNG) plants from Apache (NYSE:APA), Royal Dutch Shell (NYSE:RDS-A, RDS-B) and Encana (NYSE:ECA) have begun construction.
Add in a democratic government, currency stability and the rule of law and it's easy to see why investors should focus their energy investments towards the nation.
SEE: A Guide To Investing In Oil Markets
A Big Bet on Canadian Crude
Despite the nation's long-term promise as an energy powerhouse, many American investors have almost zero exposure to our neighbors. Popular international indexes like the iShares MSCI EAFE Index (ARCA:EFA) don't include Canada in their mix. This means investors wanting to add a dose of Canadian energy need to do it via their own means.
The easiest way is through the Guggenheim Canadian Energy Income ETF (ARCA:ENY). The fund tracks 41 different Canadian-based energy producers including Suncor (NYSE:SU), Baytex Energy (NYSE:BTE) and Cenovus (NYSE:CVE). More importantly, it covers the wide range of Canada's energy types including traditional hydrocarbons, unconventional resources and oil sands production. That gives investors plenty of opportunity to forget about the Middle East and its troubles. Add in the 3.58% yield from the funds and cheap expenses and you have a recipe for long-term success.
SEE: Oil And Gas Industry Primer
The Bottom Line
The Middle East may still rank up there when it comes to energy production, but with all the hostility and violence it could be time for investors to look towards safer pastures. In this case, that means Canada. Full of reserves and growing production, "The Land of the Maple Leafs" is undoubtedly one of the best energy-related buys out there.
At the time of writing, Aaron Levitt owned shares of Guggenheim Canadian Energy Income ETF since September 2012.
Don't forget to read the Bear side of this debate and weigh in with your opinion below.
Chart AdvisorCopper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
Options & FuturesInvesting during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
Mutual Funds & ETFsLearn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
Mutual Funds & ETFsLearn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
Mutual Funds & ETFsLearn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
InvestingA guide to identifying secular bull and bear markets.
Investing BasicsHeld onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
Mutual Funds & ETFsDiscover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
Forex FundamentalsDiscover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
Financial AdvisorsBull and Bear Markets are a reality that every investor must be prepared for. Here are a few tips.
Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>