Canaccord Energy analysts at Canaccord Genuity think recent global banking turmoil have overshadowed a “constructive Chinese demand backdrop.”
“High-profile bank failures in the U.S. and Europe have shaken the global financial markets as governments and central banks scramble to contain collateral damage,” they said. “This has triggered significant volatility in many risk assets, with WTI recently falling to US$65 per barrel (a level last seen in late 2021). Not surprisingly, this has also shifted investor focus further away from global oil supply and demand fundamentals toward U.S. Fed policy decisions. We also believe the recent statement by the US Energy Secretary, stating that refilling the SPR would be challenging despite the decline in oil prices, may create further headwinds for the commodity in the near to medium term.
“Against this backdrop, OPEC and the IEA expect a surge in Chinese demand to lift the global oil market from surplus to deficit later this year. The IEA also believes this will be accompanied by a continued recovery in global air traffic, taking average world oil demand to a record 102 million barrels per day in 2023 (up 2 per cent year-over-year). The IEA also expects countries outside of OPEC+ to drive average global production growth of 1.6 million bbl/d this year. Even with Russia’s 500,000 bbl/d production cut in March, the IEA believes global oil supply should comfortably exceed demand in H1/23. However, this agency expects a decline in non-OPEC+ production growth in H2/23 just as seasonal tailwinds and a Chinese recovery boost global oil demand. Nonetheless, we believe any further deterioration in global credit markets (and its potential impact on global oil demand) likely represents the most significant risk to a tightening crude market thesis later this year.”
In a research report released Wednesday, the firm lowered its price forecasts for both oil and natural gas for 2023 and 2024. Its WTI projections for 2023 slid to US$70 per barrel from US$80 and 2024 to US$70 from US$745.
Those changes led the analysts to cut their cash flow assumptions for companies in their coverage universe by an average of 19 per cent this year and 12 per cent in 2024. That led to a series of target price reductions from stocks in the sector.
Analyst John Bereznicki did upgraded Precision Drilling Corp. to “buy” from “hold,” seeing value following a 35-per-cent pullback in price year-to-date. His target fell to $90 from $100. The average is $142.13.
The analysts’ target changes include:
- AltaGas Ltd. ( “buy”) to $28 from $30. The average is $31.33.
- Birchcliff Energy Ltd. ( “buy”) to $10.50 from $12. Average: $11.27.
- Freehold Royalties Ltd. (“buy”) to $20.75 from $21. Average: $20.25.
- Gibson Energy Inc. (, “hold) to $24 from $26. Average: $25.47.
- Keyera Corp. ( “buy”) to $34 from $36. Average: $34.64.
- Pembina Pipeline Corp. ( “buy”) to $53 from $55. Average: $52.33.
- PrairieSky Royalty Ltd. ( “hold”) to $23.75 from $24. Average: $25.67.
- Surge Energy Inc. ( “buy”) to $13.75 from $14.75. Average: $13.86.
- Topaz Energy Corp. ( “buy”) to $27.50 from $28. Average: $28.23.
- Total Energy Services Inc. ( “buy”) to $12.50 from $16. Average: $15.83.
- Whitecap Resources Inc. ( “buy”) to $14.50 from $15. Average: $14.41.