Notley’s crude production trim fuels rally for prices, energy stocks

Alberta Premier Rachel Notley’s announcement that her province would be cutting crude production by 325,000 barrels per day sparked a rally in Canadian oil prices Monday, giving energy investors a reprieve after months of pain. Notley said on Sunday that Alberta would be cutting crude output by 8.7 per cent starting January in a bid to deal with the massive oversupply that led to Canadian oil being traded at a historic low of US$13.27 per barrel in mid-November. On Monday, Notley’s decision reversed the course and sent Western Canada Select up more than 35 per cent to trade at US$29.95 per barrel. On Friday, Canadian oil closed at US$21.93. Alberta’s oil producers immediately benefitted from the good news on Monday, closing among the Toronto Stock Exchange’s top performers. Shares of Athabasca Oil Corp. are up more than 12 per cent to $1.16, while Cenovus Energy shares rose more than 11 per cent to $10.99. Crescent Point Energy Corp. and Baytex Energy Corp. also saw big gains. Further help could be on the way for the sector, according to Ninepoint Partners portfolio manager Eric Nuttall, who expects OPEC will announce their own shut-in of at least one million barrels per day at a summit on Thursday.

“I think this is the beginning of (investors) returning to the sector, provided a positive outcome at the OPEC meeting,” Nuttall said. “If there is a cut of at least one million barrels per day ... then I think you’ll see WTI rally to over US$60 and you could have a 50-per-cent rally in many of these (stocks) simply because they ’ve fallen so dramatically.”

While the rally was the first of note for the sector in months, Nuttall wasn’t ecstatic. A 10-percent increase in share prices is great, but not when those very same stocks had fallen by 50 per cent earlier this year, he said. Notley’s production cut is temporary and will act as a bridge to Canada ramping up crude-by-rail exports and expanding Enbridge’s Line 3 pipeline by the end of 2019 — two further reasons why investors should think oil prices and energy stocks will see their growth sustained, Nuttall said. By then, producers will no longer need government intervention.