Oil prices went on a volatile ride this week, rising to $80 before crashing to $64. The reason for the volatility was the conflict between Israel and Iran, which broke out last week and continues today.
On June 13, Israel launched a surprise on Iranian officials and nuclear sites. The attack caused 80 casualties in Iran, many of them high-ranking military officers, and destroyed vital nuclear infrastructure. Later, Iran retaliated against Israel, resulting in 29 confirmed casualties, while the U.S. dropped a bunker buster bomb on Iran’s Fordow nuclear site. Iranian officials claimed that the U.S. strike did not eliminate the country’s uranium enrichment capabilities and vowed to continue enrichment.
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Oil prices rise, then fall
These are the kinds of conditions in which oil prices tend to be high. The reason prices declined to $64, after approaching $80, was most likely Russia and China’s apparent abandonment of Iran. Shortly after the U.S. strike, Russian President Vladimir Putin said that he would not support Iran militarily, citing two million Russians living in Israel. Later, China warned Iran not to close the Strait of Hormuz, which the country had previously threatened to do. These developments seemingly calmed investors down.
Canadian crude stands out
Despite the fact that oil didn’t hold its weekly highs, the events of the week nevertheless show the importance of Canadian oil. Amid Middle East instability and threats of major shipping lane closures, Canadian oil stands out as a rock solid, dependable energy source that many countries can count on.
Shifting customer base
For the longest time, Canadian oil was mainly sent to the United States. But recently, increased economic uncertainty brought on by Donald Trump’s tariffs convinced Canadian leaders to seek alternative buyers. In April, when Trump imposed his draconian tariffs, shipments of Canadian oil to China increased by 22,000 month-over-month.
Reports indicate that China is now the biggest buyer of oil sold through the trans-mountain pipeline. If trade tensions and military confrontations continue to rise, then more countries will likely seek to buy oil from stable Canadian suppliers.
Suncor Energy
Speaking of stable Canadian oil suppliers, one company that could benefit from the world embracing Canadian oil is Suncor Energy (TSX:SU). Best known as the owner and operator of Petro Canada gas stations, it is also involved in exporting crude. The company supplies and trades oil in the U.S. and UK; refines oil in Colorado; and likely indirectly supplies many other nations via oil shipped by pipeline. Suncor is an integrated energy company, meaning that it can thrive even in fairly tough oil market conditions (refining and gas station operations can make up for weak crude sales). So, Suncor will be one company to watch as the world guzzles down increasing amounts of Canadian oil.
Foolish takeaway on Canadian oil
Canadian oil has long been touted as an “ethical” alternative to Middle Eastern crude. Canada, being ideologically similar to the U.S. and Europe, does have an advantage in marketing itself as ethical in those regions. For a long time, most Canadian oil went to the U.S., despite obvious buyers in China and Europe. Today that is starting to change. Most likely, this change will turn out to have been a welcome one.
