Rally boosts ‘battered’ Canadian oil stocks
The Canadian dollar stood near its strongest level against the u.s. dollar in nearly three years as oil rallied and the greenback broadly lost ground.
The loonie was trading nearly unchanged at 1.2606 to the greenback, or us79.33 cents, having touched its strongest intraday level since April 2018 at 1.2580.
“Commodity-linked currencies have had a stellar performance in recent days thanks to widespread and sharp gains in the prices of a wide variety of commodities,” said erik Nelson at Wells Fargo.
u.s. crude oil futures settled 3.8-per-cent higher at us$61.49 a barrel, driven by the expected slow return of u.s. crude output after last week’s deep freeze in Texas shut in production.
Prices also received a boost after investment bank Goldman Sachs raised its brent price forecast by us$10, with expectations for it to reach us$70 by the second quarter and us$75 in the third quarter.
“We now forecast that oil prices will rally sooner and higher, driven by lower expected inventories and higher marginal costs — at least in the short run — to restart upstream activity,” Goldman analysts wrote.
Canadian oilpatch stocks moved higher on the positive outlook. Suncor energy Inc. surged eight per cent to finish the day at $25.90 per share, while Imperial Oil Ltd. jumped nearly seven per cent to $28.55 per share. The S&P/TSX Capped energy Index has climbed 22 per cent this year.
“Global investors have been rewarded for underweighting energy in recent years — and especially 2020 — but may want to rethink this positioning,” wrote Michael Harvey and Luke davis, analysts with rbc dominion Securities. “Limited upstream investment, an improving demand landscape as the roll-out of COVID-19 vaccines unfolds globally, capital discipline and a focus on strengthening balance sheets have placed battered and bruised energy stocks in a much better place.”
rbc updated its brent crude outlook to us$64 in 2021 and us$66 in 2022, and expects Western Canada Select differentials to narrow to around us$11 to us$12 over the next two years.
Other commodities also rallied Monday, with copper up 1.6 per cent, and gold up 1.4 per cent, boosting the loonie.
“Canada’s yields have been able to keep up with and in fact outpace gains in u.s. yields, which has further bolstered the Canadian currency,” Nelson said.
The gap between Canadian and u.s. two-year yields has climbed 11 basis points since January to 13 basis points in favour of the Canadian bond. Canadian government bond yields rose across a steeper curve in sympathy with u.s. Treasuries. The 10-year touched its highest since February last year at 1.256 per cent before pulling back to 1.238 per cent, up 2.5 basis points on the day.