Market SentimentExplains alot.....
The Financial Post reports in its Tuesday edition that it has been a terrible year for energy investors with the S&P/TSX Capped Energy Index down 21.7 per cent. Post columnist Martin Pelletier writes that to make matters worse, this may actually be understated as Suncor and Canadian Natural, which are down only 12.5 per cent and 11.8 per cent, respectively, account for 45 per cent of the index. This compares with Cenovus and Crescent Point, which are down 53.6 per cent and 48.8 per cent.
The problem is that the broader equity market has disconnected from oil and other commodities with the argument that technological efficiencies are resulting in higher economic growth without higher energy consumption. While this may play a role, Mr. Pelletier thinks it is more the case that financially engineered growth incentivized by record low interest rates has resulted in asset inflation in most sectors excluding energy, where it has had the opposite effect. This is because low rates have made debt readily available to energy companies that have reacted by bringing on more oil in an already oversupplied market. As a result, oil companies have become overleveraged in a rangebound but volatile oil-price environment.