The Syrian Effect

The following commentary is courtesy of Cardinal Capital Management Inc., the sub-advisor for the VPI Canadian Equity Pool and the VPI Canadian Income Pool. The opinions, market outlook, and asset allocation strategies are those used in the design of the mutual funds they manage that we utilize in client portfolios.

Syria continues to be embroiled in a civil war that has claimed over 100,000 casualties and has brought accusations of chemical weapons use that could potentially pull the United States into intervention. With respect to the oil markets, Syria has been under an embargo since 2011 and was not historically a large exporter of crude. Despite this, Brent crude rose  to over $116/bbl. Prices have been bid higher with the risk of conflict spreading to surrounding larger exporters, high tensions between the U.S. and Israel and Syrian allies’ Iran and Russia, and Libyan production is being impacted by one million barrels per day.

What happens next is anyone’s guess, but Cardinal’s oil stocks do not have material exposure to the Middle Eastern conflicts. The majority of production and reserves are located in Canada, which has the third highest oil reserves in the world. Companies such as Suncor, Cenovus, Canadian Natural Resources, and Imperial Oil have a massive base with which to grow production. Higher prices on supply concerns go straight to the bottom line to be reinvested in attractive projects and returned to shareholders in the form of growing  dividends.

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