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A boy wearing a military police uniform chants anti-government slogans in a street in Benghazi city, Libya, February 23, 2011. Demonstraters took the uniforms of troops loyal to Libyan leader Muammar Gaddafi who fled the city over the last few dayASMAA WAGUIH

Oil stocks pushed higher on Wednesday despite concerns that turmoil in Libya and elsewhere in Northern Africa and the Middle East could hurt some of the world's biggest oil companies that have invested heavily in the region.

Shares of Exxon Mobil Corp. , Royal Dutch Shell PLC , ConocoPhillips Co. and Occidental Petroleum Corp. advanced as much as 3 per cent during regular trading as fears about supply cutoffs in the Middle East were offset by rising prices for crude.

Some analysts said they are growing increasingly bullish on companies with major stakes in Canada's oil sands as political instability becomes a bigger concern in the Gulf region.

Oil production in Libya, which holds the largest reserves in Africa, is shutting down as violence spreads. About half of the country's oil output has been suspended as Western oil companies close facilities, the Financial Times reported Wednesday.

There is more than enough spare capacity around the world to compensate for a full-scale shutdown of Libyan production, analysts say. Saudi Arabia and some Persian Gulf oil producers have expressed willingness to increase the flow of oil if conditions worsen. But global markets are now weighing the risks that political upheaval could spread to other oil-producing nations, including Algeria and possibly even Saudi Arabia.

Oil Sands' Risk? Execution

Deutsche Bank Securities Inc. analyst Paul Sankey warned that the Gulf region now "comprises the entirety of global oil production spare capacity," given the political instability in Venezuela and Nigeria.

"For these very Middle East risks, we have a long-established overweight Canadian oil sands play, with a favoured buy on Canadian Natural Resources ," he wrote in a research report. Unlike in North Africa and the Middle East, the biggest risk in the oil sands is project execution, he said.

CNRL's Horizon oil sands plant, for example, suffered a major fire early in January and the company says it doesn't expect to resume full production at the site until the third quarter.

Other key risks in the oil sands include transporting and processing crude extracted from the oil sands, as well as possible new emissions policies from Canadian governments, Mr. Sankey said. He rates CNRL's stock his "top pick" with a price target of $50 (Canadian) based on a price-to-earnings multiple of 16 and a net asset valuation of $49.

Heavy Exposure to North Africa

In contrast, he has a "hold" rating on Occidental Petroleum Corp. and a price target on the stock of $110 (U.S.) based on a PE multiple of 13 and net asset value of $89. The Los Angeles-based company is heavily exposed to North Africa and the Middle East because of its operations in Qatar, Libya, Yemen and Oman, and any disruption in the region would pose a serious risk to the company's growth, Mr. Sankey noted.

Occidental draws more than 40 per cent of its total production from North Africa and the Middle East. ExxonMobil relies on the region for more than 20 per cent of production, while BP PLC and Shell each count on it for close to 20 per cent. In contrast, Calgary-based Suncor Energy Inc. depends on the area for less than 5 per cent of its output, according to research firm Wood Mackenzie.

Exxon Mobil, BP, Shell, Conoco Phillips, Italy's Eni SpA, France's Total SA and many other Western oil companies have in recent years negotiated billions of dollars worth of exploration and production deals with Libya's embattled leader Moammar Gadhafi. The future of those agreements could be at risk depending upon the outcome of the uprising.

For now, investors are betting that higher oil prices, and the subsequent profits they bring to producers, will more than offset any disruption in supply.

David Schnider, an analyst with UBS AG, forecasts that the price of West Texas Intermediate crude could rise to $120 a barrel within the next three months, although he is maintaining his 12-month target of $100. The price of WTI rose $3.62 on Wednesday to $99.04.