OPEC’s cuts may give oil stocks life

Bin Calgary attered energy stocks present a number of buying opportunities in the Canadian and U.S. oil and gas space, equity analysts say, even after the Organization of the Petroleum Exporting Countries’ agreement to extend supply cuts failed to lift oil prices Thursday.

Energy stocks, which have been hammered in the past couple of years amid a prolonged oil rout, fared badly on Thursday after OPEC’s decision to prolong supply cuts till March, 2018, failed to keep prices from plummeting.

The S&P/TSX Capped Energy Index fell 2.5 per cent on the day, and is down 12 per cent for the year.

Futures contracts for West Texas Intermediate fell just under five per cent on Thursday, settling around US$49 per barrel. International benchmark Brent crude also fell under five per cent to around US$51.50.

TD Bank economists expect oil demand to slightly outpace supply but warn not “to expect a huge rally in prices.”

“As evidenced by the drop in prices today, the impact of the extension in production cuts is already largely priced in, and there is still a massive glut of inventories that need to be worked down before prices can move sustainably higher,” TD said.

But a gradual balancing of the market sets the stage for a recovery that could lift stocks. Among the favourite stock picks by several equity analysts are large integrated Canadian oilsands players and energy services companies, which are expected to see a rise in activity if oil prices remain in the US$50 range.

is considered a top oilsands pick among equity analysts, particularly following its purchase of Royal Dutch Shell PLC’s Canadian assets earlier this year.

Robert Fitzmartyn, an analyst at GMP FirstEnergy in Calgary, says CNRL’s Horizon project is among the lowest per-barrel cost developments in Canada, while many other oilsands projects can directly compete with U.S. shale plays over the longer term.

“The cost dynamic in the oilsands has changed a lot, so anybody who says some of these projects aren’t viable at US$50 WTI is completely wrong.”

CIBC analysts also chose CNRL as their top oilsands pick. The analysts also suggest and

could benefit investors who are betting on a higher oil price in the future.

Fitzmartyn also suggests and

could be good oil-weighted stock picks due to a perception that their stocks are currently undervalued.

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which tracks a number of U.S. energy firms, is nearing 31-month lows relative to crude oil prices. Over the past couple weeks in particular, the XOP has lagged oil prices by roughly 18 per cent, said Eric Nuttall, a portfolio manager with Sprott Asset Management.

“You’re seeing this huge divergence of people who are either selling energy or just unwilling to buy. So you have (a) buyers’ strike.”

Nuttall sees opportunities to buy as stock valuations appear undervalued. He has made bets on

a major Canadian pressure pumping company whose stock price has been battered in recent years but, Nuttall argues, could see growth if oilpatch activity continues to pick up.

The firm has also taken positions in provider, a frack sand and

a Texasbased pressure pumping company focused on the Permian basin that straddles Texas and New Mexico.

“What we like about both of those areas is that as long as oil remains around US$50, give or take a couple dollars in either direction, I think we’ll see a continued increase in the rig count,” he said.

Analysts at CIBC point to and as two Calgary-based firms with considerable upside exposure to U.S. shale fields.