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OPEC Is Now Obsolete: Oil Crisis Update

OPEC Is Now Obsolete: Oil Crisis Update

Story Highlights

    • Many people think the U.S. has stopped importing oil, but we import 9 million barrels every day.
    • Even more surprising is where most of that oil comes from.
    • This creates an opportunity today to speculate.

It might surprise you to learn that the U.S. still imports around 9 million barrels of oil per day.

I know my dad was surprised. He thought we had stopped importing oil — but that isn’t the case.

The U.S. is technically a net exporter of oil and products, but we still import a lot of oil. What’s more surprising is where that oil comes from today: Canada.

That was the result of a 20-year evolution in oil trade.

You see, for the better part of 50 years, the epicenter for oil production was the Persian Gulf region in the Middle East.

The U.S. imported billions of barrels of oil from Kuwait, Saudi Arabia and the United Arab Emirates. Those are the primary countries of OPEC. That’s why we are so deep in Middle Eastern affairs.

For years, the U.S. was the mouth that consumed most of the world’s oil. And that meant OPEC nations could use oil as a bargaining tool with the U.S.

Today, that crown rests on China’s head.

In the last 20 years, U.S. dependence has waned. Now, we import more oil from a single country than we do from all the members of OPEC.

Massive Growth in Canadian Oil Imports Since 2000

Take a look:

The blue line shows U.S. oil imports from all OPEC countries.

In 2000, those countries shipped nearly 6 million barrels per day to the U.S.

Today, the U.S. gets just 1.6 million barrels per day from OPEC.

The reason for that is part political and part logistical.

The green line illustrates the point well. That’s U.S. oil imports from Venezuela.

The South American country has billions of barrels of oil in reserves. But the regime stifled foreign investment through taxes and outright theft.

In 2000, the U.S. imported 1.6 million barrels per day from Venezuela. The U.S. recently levied sanctions on its exports, cutting oil imports to zero.

The red line shows oil imports from Canada. It now supplies half of all U.S. oil imports. Its exports to the U.S. have climbed 171% over the last 20 years. We now import almost four times as much oil from Canada as we do OPEC.

The problem for Canada is perception. Few people even know it’s the United States’ largest oil trading partner. And when the U.S. oil industry has trouble, like it did in 2019, Canadian producers get crushed.

However, unlike U.S. shale producers, few Canadian producers took on huge debts to drill wells. Many of them have strong balance sheets and pay healthy dividends.

And as oil prices rise in 2020, these producers will be a great place for investors.

I’m taking a poll on Twitter to see where most of you are invested in this sector. Click below to share your vote!

An easy way to speculate on Canadian oil is to buy shares of the iShares S&P/TSX Capped Energy Index Fund (TSX: XEG).

As oil prices head higher, the stocks in this fund — Canadian oil producers — will recover quickly.

Keep in mind that this is a Canadian fund that trades on the Toronto Stock Exchange.

Good investing,

Matt Badiali

Editor, Real Wealth Strategist

 

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