Canada Markets closed

Energy Stocks in Canada ‘Decoupling’ From Oil Seen as Worst Ever

Michael Bellusci

(Bloomberg) -- The days when energy stocks and the price of oil moved in lockstep are now few and far between. Oil may go up but stocks still fall, and in Canada it’s the worst divergence on record.

The ratio of the iShares S&P/TSX Capped Energy Index ETF to West Texas Intermediate crude oil is at an all-time low, according to data compiled by Bloomberg.

And the so-called decoupling of energy shares from the price of WTI crude has hit Canadian stocks harder than their U.S. counterparts. Unlike in Canada, while the ratio between the iShares U.S. Energy ETF and WTI has dropped, it’s nowhere near a record low.

Read more: Wall Street’s Most-Loved Stocks Just Can’t Shake Investor Fears

Crude has gained about 20% this year despite continued macroeconomic volatility, while the Canadian energy ETF slumped more than 10%. The U.S. energy ETF slipped about 2%.

Pipeline constraints, regulatory headwinds and lackluster interest in oil-sands companies are the main reasons for Canada’s slump, said TD Securities Inc. analysts led by Menno Hulshof in an Aug. 13 report.

Read more: Pipelines Add Room on ‘Unrelenting’ Demand for Canada’s Oil

Uncertainty remains: “Calling the timing of a potential mean reversion of this ratio is difficult,” TD’s Hulshof said. The firm will need to see more certainty on Enbridge’s Line 3 expansion timing, Alberta’s plan to curtail output, along with “the sheen continuing to come off U.S.” plays including Texas’ Permian Basin.

(Updates market moves in fourth paragraph.)

To contact the reporter on this story: Michael Bellusci in Toronto at mbellusci2@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Divya Balji, Scott Schnipper

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.