Oil shares would rise on low crude prices: Analysts
Reuters. February 11
Shares in Canadian energy firms rose in tandem with higher oil prices on Friday, but analysts suggested it actually would take sustained lower crude prices to get energy stocks out of the doldrums over the long term.
Analysts said oil company equities are still far below what they would value them at given the sector's positive operating conditions because investors don't believe high oil prices are here to stay.
"Lower oil prices will lead to higher share prices," said Ken Faircloth, an industry analyst in the Calgary office of Goepel McDermid.
The Toronto Stock Exchange oil-and-gas index was up 140 at 5700 on Friday, but still off 18 percent from its year high of 6904 on September 10 and its three-year high of 8031 in October 1997.
U.S. oil prices were up 10 cents at $29.52 a barrel after reaching as high as $29.94 a barrel earlier in the session, almost triple the year-earlier levels because of output curtailments by the world's major producers.
Yet energy share prices have not kept pace because of the disbelief factor combined with heated competition for capital from high-flying Internet and biotech stocks.
"I can't remember a period this bad for the Canadian oil stocks versus other sectors of the market since the (Canadian) National Energy Program in 1980-81," said Wilf Gobert, an analyst with Calgary-based Peters & Co.
"The thing that investors have to overcome is the disbelief in pricing," said Faircloth. "The real thing here is, when is OPEC going to restore the production it took off the market?"
"We think OPEC will gradually bring supply back on to keep the market in balance," said Faircloth.
"This will gradually bring the price down, but there won't be a collapse, probably to $22.
"If the world sees that happening, then you will see people starting to believe in the price," he added.
The analysts said that the key to stable pricing was to gradually restore the 4 million barrels of oil taken off the market last spring while global demand continues to increase by 1.5 million barrels daily.
That should leave spare capacity of about 2.5 million barrels left in the world to act as a supply cushion which will be consumed in the coming years as the global economic recovery continues.
"Once people realize the shut-in production is back on stream and all it did was balance supply and demand rather than create a surplus, then people will believe there is something to the oil price," said Faircloth. "Once investors buy the theory, they will start buying the stocks."
biz.yahoo.com |
