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CALGARY — Canadian energy stocks are finally playing catch-up with sizzling oil markets.
In the past four weeks, the S&P/TSX capped energy index, which includes big names such as Cenovus Energy Inc., Suncor Energy Inc. and Canadian Natural Resources Ltd., has climbed 9 per cent as U.S. crude prices approached, then rocketed above, $100 (U.S.) a barrel.
The gains come as companies prepare to deliver second-quarter financial results that in many cases will display rich rewards from a steady improvement in heavy crude prices that has accompanied the run-up in the West Texas Intermediate light oil benchmark.
There could even be potential acquirers running the numbers on deals after a long hiatus, to take advantage of still-discounted values.
“I think people with a longer-term view are eyeing this sector, and from a strategic standpoint or a market standpoint, it’s looking pretty attractive,” said John Stephenson, senior vice-president and portfolio manager at First Asset Capital Corp.
Just six months ago, the industry was heavily pressured by fears of a protracted “bitumen bubble” – a price-killing glut of oil sands-derived crude caused by insufficient export pipeline capacity.
It has since enjoyed an unexpected bitumen bounty. Overall supply has lagged expectations, new demand is coming from a major U.S. Midwest refinery and railways have been carting away increasing volumes of crude, easing pipeline congestion.
Last week, Western Canada Select heavy blend sold for more than $90 a barrel for the first time in about 10 months, up from around $50 at times in January.
A major structural change is also sweeping the broader oil market, as North America’s WTI, deeply discounted from global prices as recently as last winter, has crept back.
On Friday, it briefly sold for a higher price than Brent oil, the international benchmark, for the first time in almost three years after several weeks of larger-than-expected drawdowns in U.S. oil inventories.
Still, shares of Canada’s oil-weighted producers stagnated until late June, when WTI started its steady run from below $94 a barrel to Friday’s settlement of $108.05. With the weak market came a drought in merger and acquisition activity and equity financing, both of which tend to fuel investor interest.
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