By Jeffrey Jones
CALGARY, Alberta, Aug 15 (Reuters) - For the energy industry, the past 12 months have brought a parade of good, bad and downright ugly headlines. Surprisingly, Bay Street has responded with marked indifference, or so it would seem.
Big-ticket takeovers, shale gas discoveries, oil spills and environmental battles: None of those stories could tell investors whether demand for oil would trend up or down.
That may prove a good thing for those who could afford to sit tight. Energy companies, now with attractive valuations, have used the lull to set the stage for a strong rebound once the spark finally comes.
But only solid economic evidence of a sustained economic recovery or a double-dip recession will get things rolling, analysts say. To date, it has been difficult to make a convincing case for either scenario.
'What would help to break things out to the upside is if we got some more definitive signs of further demand improvement in the U.S., China, Southeast Asia, or if there was some clear indication that non-OPEC supply growth was slowing and perhaps going negative in 2011,' analyst Martin King of FirstEnergy Capital Corp said.
'But right now I don't see any of those things happening.'
Canadian energy stocks have been stuck for nearly a year as crude prices have held to a flat track amid economic uncertainty and high inventories. A year ago, oil was in the $70s per barrel. It settled on Friday at $75.39 a barrel.
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Graphic: http://link.reuters.com/myg94n
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Oil weakened this past week as U.S. data showed that the number of people filing new claims for unemployment benefits jumped to the highest in almost six months.
That only added to concerns about weaker global demand after the U.S. Federal Reserve painted a picture of a fragile recovery and Chinese data showed sputtering factory growth.
Analysts warned against getting too wrapped up in employment stats when trying to gauge the outlook for oil.
'Demand is going to be related to some degree by job growth, but for me, when people look at jobs data that's just another data point they use to draw retail money back and forth from sector to sector,' King said.
OIL BULLS
Despite the unflashy performance, Lanny Pendill, an analyst with Edward Jones, is a bull on the sector's long-term prospects, recommending a 15 percent weighting in portfolios.
'Energy is very economics-sensitive, naturally, so when concerns around double dips and things of that sort begin to hit the front pages of the papers, energy's probably not going to be on the top of the list for investors,' Pendill said.
He preaches patience. Second-quarter results showed many of Canada's oil companies earning more than expected, amassing cash and slashing debt, all laying the groundwork for more investment when economic conditions finally improve.
Meanwhile, stock prices are discounted from levels that were the norm before the recession.
The Toronto Stock Exchange's oil and gas group, which includes shares of integrated oil companies, independent producers and oil field service providers, is up 3 percent since last September.
That lags 4 percent gain in the broader Toronto market of which energy accounts for more than a quarter.
In that time, the energy group has not moved beyond a 40-point range below 308 points.
To put it into perspective, the group oscillated in a gaping, 180-point range in the previous 12 months. To be sure, that included the economic meltdown of late 2008, so maybe investors were happy to forgo quite that level of excitement.
Year-to-date performance has looked worse.
Since the start of 2010, the energy group, with names like Suncor Energy Inc, Imperial Oil Ltd and Talisman Energy Inc, is down about 8 percent. It closed on Friday at 272.27. That compares with a 1.5 percent drop in the broad market.
It may not be this year, but investors who dare to be dull today could reap rewards, Pendill said.
'I think that over time the oil market will re-tighten and we could very well get back into the position, potentially, five years out where we're having challenges meeting demand,' he said.
(Editing by Frank McGurty and Janet Guttsman) Keywords: COLUMN CANADA MARKETS/ (jeff.jones@thomsonreuters.com; +1 403 531 1624; Reuters Messaging: jeff.jones.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
CALGARY, Alberta, Aug 15 (Reuters) - For the energy industry, the past 12 months have brought a parade of good, bad and downright ugly headlines. Surprisingly, Bay Street has responded with marked indifference, or so it would seem.
Big-ticket takeovers, shale gas discoveries, oil spills and environmental battles: None of those stories could tell investors whether demand for oil would trend up or down.
That may prove a good thing for those who could afford to sit tight. Energy companies, now with attractive valuations, have used the lull to set the stage for a strong rebound once the spark finally comes.
But only solid economic evidence of a sustained economic recovery or a double-dip recession will get things rolling, analysts say. To date, it has been difficult to make a convincing case for either scenario.
'What would help to break things out to the upside is if we got some more definitive signs of further demand improvement in the U.S., China, Southeast Asia, or if there was some clear indication that non-OPEC supply growth was slowing and perhaps going negative in 2011,' analyst Martin King of FirstEnergy Capital Corp said.
'But right now I don't see any of those things happening.'
Canadian energy stocks have been stuck for nearly a year as crude prices have held to a flat track amid economic uncertainty and high inventories. A year ago, oil was in the $70s per barrel. It settled on Friday at $75.39 a barrel.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic: http://link.reuters.com/myg94n
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Oil weakened this past week as U.S. data showed that the number of people filing new claims for unemployment benefits jumped to the highest in almost six months.
That only added to concerns about weaker global demand after the U.S. Federal Reserve painted a picture of a fragile recovery and Chinese data showed sputtering factory growth.
Analysts warned against getting too wrapped up in employment stats when trying to gauge the outlook for oil.
'Demand is going to be related to some degree by job growth, but for me, when people look at jobs data that's just another data point they use to draw retail money back and forth from sector to sector,' King said.
OIL BULLS
Despite the unflashy performance, Lanny Pendill, an analyst with Edward Jones, is a bull on the sector's long-term prospects, recommending a 15 percent weighting in portfolios.
'Energy is very economics-sensitive, naturally, so when concerns around double dips and things of that sort begin to hit the front pages of the papers, energy's probably not going to be on the top of the list for investors,' Pendill said.
He preaches patience. Second-quarter results showed many of Canada's oil companies earning more than expected, amassing cash and slashing debt, all laying the groundwork for more investment when economic conditions finally improve.
Meanwhile, stock prices are discounted from levels that were the norm before the recession.
The Toronto Stock Exchange's oil and gas group, which includes shares of integrated oil companies, independent producers and oil field service providers, is up 3 percent since last September.
That lags 4 percent gain in the broader Toronto market of which energy accounts for more than a quarter.
In that time, the energy group has not moved beyond a 40-point range below 308 points.
To put it into perspective, the group oscillated in a gaping, 180-point range in the previous 12 months. To be sure, that included the economic meltdown of late 2008, so maybe investors were happy to forgo quite that level of excitement.
Year-to-date performance has looked worse.
Since the start of 2010, the energy group, with names like Suncor Energy Inc, Imperial Oil Ltd and Talisman Energy Inc, is down about 8 percent. It closed on Friday at 272.27. That compares with a 1.5 percent drop in the broad market.
It may not be this year, but investors who dare to be dull today could reap rewards, Pendill said.
'I think that over time the oil market will re-tighten and we could very well get back into the position, potentially, five years out where we're having challenges meeting demand,' he said.
(Editing by Frank McGurty and Janet Guttsman) Keywords: COLUMN CANADA MARKETS/ (jeff.jones@thomsonreuters.com; +1 403 531 1624; Reuters Messaging: jeff.jones.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.