BNS Upgrades (Including Topaz) With significant increases to their commodity price forecasts in response to the geopolitical environment, Scotia Capital analysts Cameron Bean and Jason Bouvier raised their target prices for North American energy stocks by an average of 19 per cent.
On Tuesday, the firm increased its WTI forecast for 2022 by 24 per cent to US$88 per barrel and 2023 by 7 per cent to US$77. Its NYMEX Henry Hub estimate for this year rose by 7 per cent to US$4 per million British Thermal Units.
“We are updating our oil price forecasts through 2023 following the outbreak of war between Russia and Ukraine. Oil prices have moved sharply higher in the recent weeks with Brent reaching over $115 per barrel after averaging just below $80 per barrel in 4Q21,” they said. “We expect the geopolitical risk premium to remain elevated this year and next. As well, the IEA’s recent revision lifting global oil demand in 2022 by 800 mbbl/d has added to the bullish sentiment. Thus, the supply/demand outlook is tighter than we had previously assumed.
“Regarding the sanctions on Russia and its energy sector, based on our analysis, unfortunately the world might not be able to afford the economic collateral damage from such supply disruptions in an already tight energy market. In December 2021, Russia exported 5 mmbbl/d of crude oil and condensate and another 2.85 mmbbl/d of refined products. Even in a best-case scenario, OPEC+ spare capacity will only add 4.8 mmbbl/d to the market. As for the natural gas market, Russia supplied 41 per cent of European natural gas consumption in 2019. In our view, a sudden stop in Russia’s natural gas supply will have a catastrophic impact on the already dire situation in the European energy market.”
For their other top picks, the changes were:
Large-cap, oil-weighted:
- Cenovus Energy Inc. ( “sector outperform”) to $24 from $20. Average: $22.74.
Large-cap Montney/natural gas:
- Tourmaline Oil Corp. (TOU-T, “sector outperform”) to $87 from $77. Average: $66.46.
Small-to-mid-cap Montney/natural gas:
- Spartan Delta Corp. ( “sector outperform”) to $17 from $14. Average: $12.59.
Royalty and income stream:
- Topaz Energy Corp. ( “sector outperform”) to $30 from $27. Average: $24.39.
Other large-cap changes are:
- ARC Resources Ltd. ( “sector outperform”) to $26 from $23. Average: $19.73.