Blackmont: Nexen, Talisman To Benefit More from Oil Price Differences Than Canadian Natural, EnCana

Canadian oil producers operating beyond the shores of Canada and the United States stand to benefit the most over the next few months from a rare circumstance that has seen global crude prices rally next to the North American benchmark, West Texas Intermediate.

That’s the view of Blackmont Capital, which in a note to clients said beneficiaries of the premium being paid for the likes of Brent ahead of WTI would include Nexen Inc. (NXY) and Talisman Energy Inc. (TLM).

Both Canadian companies will produce about half of their oil this year and in 2008 from operations outside of North America, particularly from projects in the North Sea.

“Canadian Natural Resources Ltd. (CNQ) is likely to benefit far less; only 15% of its total production base is accounted for by international oil production,” Blackmont’s Calgary-based energy team, headed up by analyst Martin Pelletier, wrote, noting also that EnCana Corp. (ECA) “has no international oil exposure.”

Brent, the price for oil production flowing west from Europe, Africa and the Middle East, has rallied in recent months relative to WTI, which is priced at Cushing Okla., where there is a glut.

The three other largest global benchmarks used as a reference point for oil pricing are Fateh, priced in Dubai for Middle East oil flowing to the Asia-Pacific region; Bonny Light, used for oil flowing from Nigeria and Tapis, which is priced in Malaysia.

The four benchmarks have all rallied relative to WTI in the last two quarters, Blackmont said. In fact, three of the four are currently trading higher that WTI. Inventories of WTI, meanwhile, are peaking around Cushing because of an unprecedented level of unplanned refinery shutdowns, the most significant of which was a major fire in February at Valero’s refinery in the Cushing area.

New output arriving from the Alberta oilsands as a result of additional pipeline capacity heading into Cushing is also contributed to the glut.

Blackmont said the trend around Cushing is reasonably short term and will correct as refiners get up and running. Longer term, however, solutions to Oklahoma’s declining relevance as an oil hub could include the construction of additional storage capacity around Cushing and building more pipelines to divert oil to other locations.

Blackmont cites research from energy consulting firm PIRA Energy Group that suggests the situation around Cushing will not likely be resolved before 2009.