Scotia Capital analyst Jason Bouvier thinks “years of underinvestment and continued capital discipline have laid the groundwork for a structurally positive view of Canadian commodity prices.”
“We expect the WCS differential to continue to narrow beyond 2023, due to lower refining downtime, added pipeline capacity, and new heavy oil refining capacity coming online,” he said. “As for condensate, we expect prices to strengthen in H2/23 due to higher diluent requirements exiting the turnaround season. With the global refinery complex in max distillate mode, we expect strong SCO demand, given the higher distillate yield.”
In a research report released Monday, he made a series of target price changes to Canadian energy stocks after the firm raised its oil price projections, believing “the global oil market in the near term will be driven by Saudi Arabia’s aggressive management of prices.”
“We now assume Saudi Arabia’s latest 1 million barrels per day of temporary cut will be extended at least through the 1Q24 and likely through 2024 or 2025,” said Scotia. “We think demand growth will start to normalize in 2024. We expect demand from OECD countries will be flat to slightly declining over the next several years while China demand growth rate will slow drastically.
“We are raising our Brent price forecast for 4Q23 to $92 per barrel, and for 2024 to 2025, we are increasing prices to $85/bbl; we maintain our long term target unchanged at $65.0/$60.5 per barrel for Brent/WTI, respectively. We think Saudi Arabia could begin to face more challenge in their grip of the market by 2026/2027 and forecast prices could decline to $75/bbl by 2026 and then to $65/bbl in 2027 and 2028.”
Mr. Bouvier’s changes are:
- Baytex Energy Corp. ( “sector perform”) to $6.75 from $6. Average: $7.46.
- Canadian Natural Resources Ltd. ( “sector perform”) to $90 from $86. Average: $95.95.
- Cenovus Energy Inc. ( “sector outperform”) to $31 from $30. Average: $31.85.
- Enerplus Corp. ( “sector perform”) to $25 from $23. Average: $24.06.
- Freehold Royalties Ltd. ( “sector perform”) to $18 from $17. Average: $19.13.
- Imperial Oil Ltd. ( “sector outperform”) to $83 from $76. Average: $84.
- International Petroleum Corp. ( “sector perform”) to $17 from $16. Average: $17.30.
- MEG Energy Corp. ( “sector outperform”) to $27 from $28. Average: $28.38.
- Ovintiv Inc. ( “sector outperform”) to US$53 from US$49. Average: US$57.85.
- PrairieSky Royalty Ltd. ( “sector perform”) to $25 from $22. Average: $25.63.
- Suncor Energy Inc. ( “sector perform”) to $47 from $44. Average: $52.97.
- Vermilion Energy Inc. ( “sector perform”) to $23 from $22. Average: $25.32.
- Whitecap Resources Inc. ( “sector perform”) to $13 from $12. Average: $14.40.
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