With the price of oil now hovering around $50 U.S. a barrel, and any price fluctuations seemingly met with force by the Organization of the Petroleum Exporting Countries on both the upside and the downside, some investors feel that now may be the time to jump in and buy some beaten up Canadian oil stocks.
While I do believe that some great bargains do exist today for investors looking to go dumpster diving (more appropriately called value investing), here are a couple of key reasons why I would argue investors need to be careful in this sector.
First, long-term investors will certainly not like the macro picture for carbon producers, considering we are now moving toward a world which is becoming heavily focused on renewable energy sources.
With many “ESG” companies gaining favour with investors and companies that pull fossil fuels out of the ground playing the role of villains, it may seem foolish to bet against these trends.
Second, Canada’s oil patch 50 years from now, many argue, likely either won’t be operating (Canada’s heavy oil is among the worst types from the environmental standpoint), or will be much smaller in scale, as renewable energy continues to get cheaper, replacing the need for fossil fuels almost entirely as solar/wind/hydro technology continue to improve and production costs continue to decline over the long term.
For these reasons, and other headwinds including WCS discount to Brent or WTI, investors ought to be careful with any long-term investment in Canada’s oil sands sector.
Invest wisely, my friends.
