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Stock Strategist

Two Picks in the Oil Patch

Our higher oil-price assumptions unveiled some investing opportunities.

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We're now seeing a handful of investment opportunities in the oil patch after raising our long-term oil price outlook. We raised our oil price deck to reflect higher costs and incorporation of an upside risk premium to reflect current dynamics in the oil industry. Our higher oil price outlook boosted our fair value estimates for many energy companies. Read on to learn more about the change in our assumptions, as well as which stocks we'd consider buying.

Since our last oil-price update (September 2006), we have continued to see oil finding and development costs and operating costs climb. In particular, we've seen significant cost escalation in marginal projects in the oil sands in Canada (a major source of future oil supply). We think the price required to induce new marginal producers to invest in new supply will be around $50-$60 per barrel over the next five years.

Elizabeth Collins has a position in the following securities mentioned above: CNQ. Find out about Morningstar’s editorial policies.