Oil Going Off the Boil

After hitting a near-term low of $33.87 (U.S.) a barrel in December, the price of crude oil has been on a strange course. The price doubled by the start of June, with investors beginning to price in higher energy demand as the global economy found its feet. Since then, though, oil has meandered: In nearly four months, oil has fallen about 4 per cent.

But how have energy stocks performed? The S&P/TSX energy subindex has performed considerably better than oil, rising 0.8 per cent since the start of June, after dividends are included, for an outperformance of about 5 percentage points.

The returns by big energy producers are clustered together, implying that there isn’t a big difference among them when the price of oil is flat-lining.

For example, Suncor Energy Inc. (SU) has fallen 2.3 per cent since the start of June, Canadian Oil Sands Trust (COSWF) has risen 2 per cent, EnCana Corp. (ECA) has risen 1.2 per cent and Talisman Energy Inc.(TLM) has risen 2.8 per cent.

There are a few exceptions, of course. Among the big energy producers, Canadian Natural Resources Ltd. (CNQ) stands out with its 11.7 per cent return.

Meanwhile, smaller companies – some of which are involved in energy exploration or production overseas – have been performing considerably better over this period.

Pacifiv Rubiales Energy Corp., which produces oil in Colombia, has soared 80.5 per cent since the start of June. Advantage Oil & Gas Ltd. (AAV), an intermediate producer in Western Canada, has risen 51.1 per cent. Crew Energy Inc. (CWEGF), an energy exploration company, has risen 40.7 per cent. And Trican Well Service Ltd. (TOLWF) has risen 34.7 per cent.

Comments

[snakes alive:]

this article is very weak! how about all the domestics that have flown to the moon- just to name a few sgy mra bexp useg kog axas clr wll eog brnc
almost a worthless article-
must be an Obama supporter!

Sep 25 08:19 PM

[whisperonth...:]

kissa, we get it.

Sep 26 09:56 AM

[Road Runner:]

I don't think oil has been on a "strange course" at all. The price of oil has tracked a very logical curve.

Since oil has become an investment asset class about 8 years ago, oil price has been dominated by speculation. The price went to a ridiculously low price of $35 early last year because hedge funds were forced to dump positions in everything to raise cash to survive. Everyone else was just waiting for the end of that liquidation - "don't fight the tape".

Once everyone realized that there was not going to be another Great Depression, then many dived back into oil. Oil went straight to $70 because many people "know" (conventional wisdom) that oil has to "go to the moon" when the world economy fully recovers. I believe this is bad conventional wisdom.

It's been oscillating around $70 for months because it has reached equilibrium between the reality of supply and demand ($70 is too high now for supply and demand) and speculation of much higher future oil prices.

The reason, IMHO, there has been so much volatility around $70 is because of there is a very strong game of "tug of war" going on between fundamentals (pushing price down) and speculators (pushing price up).

Sep 26 05:19 PM

[31October:]

Road Runner is correct, but there is also a second batch of price supporters: The exploration & driller cos, from domestic to the Saudis, need ~$70/barrel to make further extraction efforts worth it. With various corners of production needing a long-term floor to keep stable financing, and the US administration begging banks to provide financing, [[and the producers paying Congress]], then there is a triumvirate of price supporters.

(Whether it goes to the moon is debatable. But a diminishing resource needed by a population that is becoming more mobile even as it grows? Hmmm... Maybe the moon is not so lofty a goal. Next time it's <50, I'm in.)

Sep 26 08:27 PM

[Shale Gas:]

Read it and weep, peak oilers:

"Brazil’s so-called pre-salt oil region may hold between 25 billion and 100 billion barrels of oil, the country’s cabinet chief said. "

www.bloomberg.com/apps...#

Sep 30 02:08 PM