Heavy Oil Investing News

By Duncan Sutherland- Exclusive to Heavy Oil Investing News

The big story of the week is oil’s retreat. The NYMEX crude prices fell just over fifteen dollars through the week. The chief driver of the slide was a worrisome economic outlook for the United States. Indications began to appear that strong supply and depressed demand would continue into the autumn. Some are warning of an even larger fall in the barrel price in the future. This forecast of significant demand destruction may be vindicated should the turbulence in America’s economy continue.

A more welcome part of the decrease was the news that Undersecretary of State for Political Affairs William Burns would talk with Iran’s nuclear point man, Saeed Jalili. Although it was explicitly not to ‘negotiate’, any good faith efforts are reassuring with tension running so high. The post-talk signals from the State Department were less encouraging; it appears that Undersecretary Burns delivered a two-week ultimatum stipulating Iran must freeze all uranium enrichment or face further sanctions.

Iran was also expressing an interest in closer cooperation with Venezuela’s state-owned PDVSA. Iran lacks PDVSA’s technological expertise in producing and upgrading heavy oil, and is even less attractive to foreign investors. Further discussions will take place at the upcoming OPEC meeting. Pending Russian involvement, an axis of oil retrieval may be in the offing.

Activity was abundant in the Canadian heavy oil/oil sands sector. Taiwanese state-run energy company Chinese Petroleum Corp has issued a memorandum of understanding with Indian Oilsands, a Saskatchewan First Nations-run company. The plan is for CPC to invest some (USD) $791 million for exploration in north-western Saskatchewan.

Nexen Inc. (TSE:NXY) took a drubbing on the 17th as oil prices were sliding and second quarter results were less than expected. The week as a whole was less than kind to Canada’s markets. After months of relative immunity to global downturns, the S&P/TSX Composite index dove on the fifteenth, closing the week with a lukewarm recovery. The fluctuations served to underline the index’s reliance on energy firms. If oil prices stage another significant retreat, the market will look much weaker than it currently does.

TransCanada Corp. (TSE:TRP) confirmed that it had signed new deals for its Keystone Pipeline expansion project. Working with partner ConocoPhillips, (NYSE:COP) the project will increase the flow of Albertan oil to Gulf Coast refineries by more than half a million barrels per day by 2012. The partnership is soliciting producers’ bids for transportation until early September. Valero Energy Corp (NYSE:VOL) noted that it had agreed to potentially receive the oil at its Port Arthur refinery.

On the topic of Gulf Coast refineries, one should keep in mind that the 2008 hurricane season continues. Although it appears that Tropical Storm Dolly will dissipate rather harmlessly, the potential for precautionary shutdown and/or physical damage to Gulf Coast rigs and refineries will persist through to the end of November, peaking during the August-October period.

Farther from home, Pacific Rubiales Energy Corp. (TSX:PEG)acquired a 100% interest in a Colombian heavy oil property, as well as a 50% working interest in a second. The second property will be under the aegis of a joint venture with Talisman Energy’s (TSX:TLM) Colombian division.

A multi-year trend of more exploration and production in South America looks to accelerate after two of Colombia`s neighbours; Venezuela and Ecuador agreed to build a huge new refinery on Ecuador`s coast. The refinery is scheduled to come online by 2013 and may be complemented if PDVSA`s plans to build new refinery capacity in Brazil and Nicaragua proceed.

Although new production and refining capacity may look to be a boon to North America`s beleaguered consumers, Venezuela`s good neighbour policy does not apply north of the Gulf. Indeed, Mr. Chavez and PDVSA`s strategies are designed to reduce the country`s dependence on America as a customer. The new refineries, along with the Petrocaribe energy club seek to expand regional demand on Venezuela`s oil exports. Through Petrocaribe, Venezuela offers financing and flexible repayment plans for member`s oil purchases. Should Guatemala and Costa Rica follow through on their plans to join, the alliance will have significant influence over Central America and the Caribbean`s economies.

Mr. Chavez also scored a public relations victory this week as New Hampshire’s Citizens Energy nonprofit group agreed to the two-year old offer from Venezuela’s Citgo to provide subsidized heating oil for lower-income Americans. New Hampshire was the last New England state to accept the offer.

That’s all for the Upgrader this week, see you next week. For the latest in Gas investment news, check out www.gasinvestingnews.com