Canadian Energy Stocks Plunge Amidst Weather, Economic Factors and Price Volatility

Strategic Insights -

Canadian energy companies have suffered a 20% decline in share prices in the fourth quarter of 1997, largely due to weather, domestic and foreign economic factors, and concerns about oil and gas prices. Although the Asian economic crisis has had an impact on worldwide demand growth, its effect on Canadian energy stocks is seen as minor by analysts. The shift in perception about oil and gas price stability and crude price volatility have also contributed to the decline. Canadian producers have been affected by the widening margin between heavy and light crude prices, with heavy crude trading US$6.27/bbl lower than light grades, and the unseasonably warm weather has curbed demand.

Key Takeaways:

  • Canadian energy stocks decreased by 20% in the fourth quarter of 1997 due to weather, domestic and foreign economic factors, and concerns about oil and gas prices.
  • Analysts estimate that shares of Canadian producers are trading 20% to 30% lower than their American peers.
  • Vertically integrated Canadian oil and gas companies like Petro-Canada and Shell Canada Ltd. have fared better than upstream companies due to their ability to balance losses with refining and marketing profits.
  • The widening margin between heavy and light crude prices has forced Canadian companies to produce more heavy oil, which has become less profitable due to the recent price downturn.
  • The unseasonably warm weather has curbed demand for heavy crude, contributing to the decline in Canadian energy stocks.
  • Analysts see little hope for a quick recovery in Canadian oil and gas shares, predicting a "real tough" Q1 and Q2 of 1998.

Statistics:

  • 20% decline in share prices of Canadian energy companies in the fourth quarter of 1997.
  • US$6.27/bbl margin between heavy and light crude prices.
  • 0.5% decrease in world demand growth attributed to the Asian economic crisis (Merrill Lynch estimate).
  • 20-30% lower trading price of Canadian producers compared to their American peers (analyst estimate).
  • 7.11% loss in value of the TSE 300 Index since the close of the third quarter.

Sources:

  • "Canadian energy stocks hammered by foreign and domestic economic factors and weather." Reuter's, 1997.
  • Merrill Lynch's Robert Hinckley cited in "Asian crisis shrugs off Canadian energy stocks." Globe and Mail, 1997.
  • John Clarke, oil analyst at Deutsche Morgan Grenfall, cited in "Canadian energy stocks bear brunt of price downturn." Financial Post, 1997.
  • "Canadian heavy crude demand weak, producers see harder times." Oil & Gas Journal, 1997.