Canadian Oil and Gas Equities Have Reached a Near-Term Bottom

by: Zvi Bar

I previously wrote an article indicating that recent general market activity and an apparent temporary downward correction to oil created an environment where Canadian oil and gas companies appeared to have increased risk of devaluation in the short-term. I subsequently highlighted the broadly negative performance of seven Canadian oil and gas companies, noting that these companies lost between 4-10% of their value during the first half of June.

Since then, these equities have appeared to stabilize. Over the last 2 weeks, the performance of the group has been broadly positive, with some exceptions:

2-week performance and chart:

  1. Baytex Energy Corp. (NYSE:BTE): 4.57% gain
  2. Cenovus Energy Inc. (NYSE:CVE): 6.69% gain
  3. Enbridge Inc. (NYSE:ENB): 3.6% gain
  4. Enerplus Corporation (NYSE:ERF): 1.94% gain
  5. Pengrowth Energy Corporation (NYSE:PGH): 0.81% loss
  6. Provident Energy Ltd. (PVX): 6.33% gain
  7. Penn West Petroleum Ltd. (PWE): 4.04% loss

(Click to enlarge)

Similarly, the 1-month chart shows what appears to be a strong trend upward among these companies within the last few days of June, following several negative weeks:

(Click to enlarge)

While the recent downturn dud continued into the second half of June, the market appears to be searching for a near-term bottom for oil prices. Oil usually appreciates during the summer due to increased demand. Considerably more family travel occurs within the United States during the summer and many may start their recreational travel and other activities over this coming U.S. Independence Day weekend and only increase them in the coming weeks. Such increased domestic demand could bode well for these Canadian suppliers.

These energy natural resource linked equities have appeared to seek out near-term bottoms much like what is occurring to oil generally. The end of such a range-bound correction is prone to initiate a strong move upwards or downwards, here being led by the price of oil. This current activity indicates investors are again feeling comfortable with these Canadian oil and gas equities and the relative safety of the significant yields several of them offer.

As stated previously, the higher yield Canadian oil and gas equities appear capable of maintaining their current distribution rates so long as oil prices stay above $80 per share and barring any disruptions to their businesses.

Disclaimer: This article should not be construed as personalized investment advice as it does not take into account your specific situation or objectives.

Disclosure: I am long PGH.