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How Far Can Oil Climb Before the New Year?

Ambrose O'Callaghan

On Monday, November 20, regulators in Nebraska gave the go-ahead to the Keystone XL pipeline but designated an alternative route for TransCanada Corporation (TSX:TRP)(NYSE:TRP). This came a week after the Keystone pipeline leaked over 795,000 litres of oil in northeastern South Dakota. Fortunately, officials appear confident that the leak has not polluted any bodies of water or drinking systems.

I recently covered developments at TransCanada following the cancellation of the Energy East Pipeline. TransCanada stock has climbed 2.3% month over month as oil prices continue to impress.

The spot price of oil briefly made it above the $58 mark on November 21, a two-year high. The Keystone pipeline cut combined with low inventories boosted the price in mid-week trading. Keystone is expected to cut deliveries by 85% through November 30. Also pushing prices up was a recent report from the American Petroleum Institute (API) that showed U.S. inventories falling by 6.36 million barrels.

Industry experts are also anxious to see the result of the next meeting between the Organization of Petroleum Exporting Countries (OPEC) on November 30. If OPEC members elect to lengthen the production cut beyond March 2018, as they are expected to do, oil prices could surge into the first weeks of 2018.

Geopolitical tensions in the Middle East have also pushed oil prices higher. The Islamic State of Iraq and the Levant (ISIL) has been degraded by a broad coalition and lost almost all of its territorial gains, but tensions between Saudi Arabia and Iran threaten to engulf the region into seemingly endless proxy wars. The fallout of the Syrian and Iraqi civil wars has also seen the rise of a Kurdish population seeking independence in the oil-rich northern regions of both nations.

In a recent article, I discussed the possible winners and losers from rising oil prices. Suncor Energy Inc. (TSX:SU)(NYSE:SU) continues to be a beneficiary of the bullish oil run. Suncor stock has increased 6.7% month over month. The company released its third-quarter results on October 25 and posted net earnings of $1.28 billion compared to earnings of $392 million in Q3 2016.

According to the September 2017 Statistics Canada manufacturing survey, sales in the petroleum and coal product industry increased 10.3% to $5.5 billion. Both industries also reported higher sales volumes ? up 6.7% in September.

Is $60 oil by the New Year in the cards?

Oil prices will have to strike a delicate balance before the November 30th OPEC meeting. Declining inventories and the threat of $60 oil could convince members to pull back on a continued production cut. There have been reports that Russia, which initially seemed committed to a six-month extension to the March 2018 deadline, is increasingly skeptical with oil prices rising. Gazprom Neft, the fourth-largest oil producer in Russia, currently opposes an extension to the production cut.

Odds are that OPEC will ultimately elect for an extension, which should push prices above the key $60 threshold and perhaps beyond. This is not only good news for Canadian energy companies, but a Canadian economy that has slowed in recent months.

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Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned.