Lower crude oil prices were hitting Canadian energy stocks on Thursday, but this might give investors a good time to buy into the sector if they’ve been sitting on the sidelines.
The energy subindex within S&P/TSX composite index fell 2.6 per cent in mid-morning trading, its biggest decline in more than a month. Blame it on oil: It fell to $66.27 (U.S.) a barrel, down $2.70 – not only a sharp move, but its fifth decline in six days, as investors recoil at reports showing U.S. crude oil and fuel supplies rising amid what could be an energy glut in the United States.
The latest report showed that gasoline stockpiles rose 5.41 million barrels last week, well ahead of expectations.
However, Dominic Schnider, an analyst at UBS, believes there is an investing opportunity here. He actually raised his 2010 forecast for global crude oil demand by 300,000 barrels a day, to 85.8 million barrels a day, due to what he sees as solid economic activity in emerging markets, which should account for about three-quarter of the world’s incremental demand for oil.
“Our view reflects solid crude oil imports from China, which rose 18 per cent year-on-year in August,” the analyst said. “That does not mean demand from the developed world is not important. For a tighter supply-demand balance, however, we only need a stabilization in demand, not a significant recovery.”
He recommends investing in oil when it falls between $65 and $70 a barrel, putting it in the sweet spot right now. Energy stocks have been tracking the price of oil fairly tightly recently, which implies that this might be a good time to wade into the oil patch as well.
