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The most cynical trade of 2014 (so far, anyways…)

Plus: Norway is discussing the possibility of divesting its sovereign wealth fund from the oil and gas sector. Should Alberta companies be worried?

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Mar 4, 2014

by Max Fawcett

The situation unfolding in Ukraine is already a geopolitical crisis, and it may only be a matter of time before it becomes a humanitarian one. But those looking for a way to trade it – and, let’s face it, that’s what traders do – might want to direct their attention to Vermilion Energy (TSE:VET). That’s because the Calgary company has significant exposure to European natural gas prices – ones that would spike if Russian supply was cut off either deliberately or because of a military conflict. “They’re unfortunate events, obviously, and we don’t wish those on anybody,” CEO Lorenzo Donadeo said in an interview yesterday. “But the increased pressure on European gas prices will really give us strong cash flow out of our European business.”

Meanwhile, oil traders (and companies) might want to cast their gaze across the Atlantic as well, as Norway is engaged in an interesting debate over how its massive sovereign wealth fund deploys its firepower. It holds more than one per cent of all global shares, held US$43 billion in oil and gas stocks at the end of the third quarter of 2013, and is considering divesting a considerable portion of those funds. As a Reuters story points out, this wouldn’t be out of character for the country or the people who manage its shared wealth. “Norway’s sovereign wealth fund, the world’s biggest, regularly excludes companies or sectors from its investment universe if its ethics council deems that a particular activity is unethical. It does not invest in tobacco producers and makers of certain weapons, like cluster bombs and nuclear arms. It has also excluded some of the world’s biggest miners, accusing them of causing severe environmental damage.” Could it add oil sands producers to that list? And if it did, what would the impact be? Certainly, these are questions worth considering – and maybe worrying about.

 

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