Of course this was released before the weekend's events in the Red Sea and corresponding rise in the price of oil this morning. GLTA Atb Capital Markets has released a start of the year outlook for the Canadian Upstream and Integrated Oil and Gas sector, which includes lower price assumptions for crude and a warning to investors that making profitable trades is going to become more difficult.
“We expect continued strong medium- and long-term investment appeal for the Canadian upstream and integrated oil and gas sector, with markets continuing to navigate near term volatility and the impacts of macroeconomic challenges,” a summary of the report said. “These near-term challenges generally see our 2024 forecasts for industry profit margins and returns on capital modestly lower than 2023 (with some commodity price drive downward revisions with this update, primarily to gassier producers). As a result, profitability metrics remain above the long-term industry averages, but trail the 2022-2023 timeframe, and in our view, oil and gas stock picking in 2024 has become inherently more difficult as a result.”
For the first quarter, Atb cut its crude oil price forecast by US$5 a barrel to $75, representing little progress from the current oil price near $73. Atb is keeping its 2025 forecast unchanged at $70, and its long-term view remains at $60.
“We look at the oil macro for 2024 tenuously, with slight upside potential if the U.S. and Chinese economies stick soft landings and don’t see considerable slowdowns/recessions. More likely, we see downside potential for crude markets in 2024, with anticipated y/y growth of US and Russian supply, marked by 2023 US oil production YTD as of September up ~1.0 mmbbl/d y/y without a material change in global oil demand and with little sign of slowing down,” Atb said.
“In our view, we see the Q1/24 OPEC+ supply cut of 2.2 mmbbl/d as unsustainable, with OPEC+’s spare capacity estimated at 4.6 mmbbl/d (or ~4% of global demand), US oil production growing y/y, and without a material rise in global oil demand. OPEC+’s supply cut was not received well by the market for several reasons: the confusing message as each country separately announced its cuts rather than OPEC+ releasing one cohesive cut announcement, and with a level of disbelief that member countries will be compliant with the voluntary cuts,” the report said.
Alongside the somewhat downbeat outlook for oil fundamentals came several price target cuts. They were:
Birchcliff Energy Ltd : to C$8 from C$10
Tourmaline Oil Corp : to C$85 from C$92
ARC Resources Ltd ): to C$26 from C$27
Crew Energy Inc to C$7.25 from C$8
Enerplus Corp cuts target price to C$26.5 from C$27
Freehold Royalties Ltd to C$19 from C$19.5
Kelt Exploration Ltd : to C$9 from C$9.25
Paramount Resources Ltd : to C$37 from C$38
Spartan Delta Corp : to C$4.5 from C$5
Topaz Energy Corp; to C$30 from C$32
Whitecap Resources Inc : to C$15.5 from C$16