OPEC influences BP oil sands deal

Written by Michael Vass

When will oil prices break thru the $100 a barrel mark? That is a question that Europe and America are considering now, even as OPEC has decided to hold production levels steady, and the question of an American recession loom on the horizon.

Though President Bush has taken action to halt the mortgage crisis, the demand and cost are still serious issues. So serious in fact that BP has just inked a $5 billion deal with Husky Energy to take a position on the huge oil sands reserves found at Alberta oil sands deposit. Previously the cost and difficulty of oil sands had prevented BP from getting involved, but with oil at nearly $100 a barrel there has been a need to change.

Oil sands are a mixture of sand, water and heavy crude, which is difficult and expensive to extract. But the partnership expects to be able to produce oil at a cost of about $40 a barrel.

Even if America, and subsequently Europe, falls into a recession the demand for oil is likely to increase (though more slowly) as technology consumes more and more. The expectation that future innovation in the recovery of oil from oil sands is probable.

Recently the Energy sector has been targeted by analysts looking at the S&P 1500 as the top sector recommended. And if the mortgage crisis fails to get worse, while America avoids falling into a recession, demad for oil will likely increase as the winter storms start to affect consumption. The demand for cheap and plentiful oil, without the influence of OPEC and the turmoil of the Middle East politics, is on the horizon.

Given that, the outlook for global energy stocks seems positive in the near-term at least.

“We like the outlook for raw-materials and energy shares very much,” said Pat McHugh, who helps manage about $310 billion as a portfolio manager at MFC Global Investment Management in Toronto.

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