Near-term uptrend for XEG but the major trend is down

With a weighting of 27.88% in the S&P/TSX Composite Index, the energy sector holds the key (along with materials—16.88%) for the continuation of the uptrend in the index. But with the underlying commodities, including oil and natural gas, not breaking out to the upside; it is hard to be optimistic. And then there is the frustrating Canadian crude oil differential due in part to pipeline constraints. The differential compared to world oil prices (Brent) is around $50.00 per barrel. Canada imports around 40% of the oil it consumes. So eastern Canada is paying world prices for crude and western Canada is losing $1.5-billion a month because of the differential. The oil visionaries out west, with the “let eastern Canada freeze in the dark mentality”, were not the great oracles. Who needed to ship oil to the east when our friends to the south would take all we could produce out west? You have the answer today and there is no easy solution. Pipelines cannot be built in a day and the U.S. is able to squeeze more and more out of their wells due to advances in drilling technology—hydraulic fracturing.

The financials, with a weighting of 29.62%, have done the heavy lifting and are up over 19% from the November, 2012 low. But the financial sector is close to major resistance levels and is due for a consolidation or correction.

XEG – S&P/TSX Capped Energy Index Fund – Suncor represents 18.60% of this fund.

Reference the last chart analysis for the S&P/TSX Index posted on January 18, 2013

Reference the last chart analysis for XEG posted on September 18, 2012

Relevant articles picked from the Web:

• Heavy crude discount no cause for panic — FP — February 1, 2013
• Prepare for a gusher in Canada’s oil sector with these ETFs — Globe — January 31, 2013
• How the 14 major commodities will do for the next two years — FP —January 25, 2013

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