An energy expert anticipates crude oil prices to stay above US$60 per barrel heading into 2026 as Trans Mountain plans to increase pipeline flows while an Alberta energy giant aims to acquire a nearby oilsands producer.
The TMX pipeline, owned by the federal government, went through a $34 billion expansion recently tripling capacity by 300,000 barrels per day to 890,000 barrels due to the expansion. MEG Energy Inc. meanwhile accepted a cash-and-stock takeover offer from oilsands neighbour Cenovus Energy Inc. worth $7.9 billion.
“We’ve been calling for $60 crude prices in 2026 sort of starting to thaw that view,” Patrick O’Rourke, managing director, ATB Capital Markets told BNN Bloomberg in a Tuesday interview. “I think if you look at a dovish position from the Fed here and what that could do, they’re kind of softening the stance on inflation here. Could that stimulate some demand? That would be the front end of the crude trade here and then at the equities level, hard assets, Canadian assets, in particular, with the long duration of the oilsands, you could see capital flow to them as a longer-term inflation head. We like the setup on that side.”
O’Rourke says demand will pick up as overall inflation cooled to 1.7 per cent in July due to the removal of the federal carbon tax. He sees synchronicities between Cenovus and MEG as the companies have side-by-side oilsands properties at Christina Lake south of Fort McMurray, Alta. The deal must be accepted by two-thirds majority shareholders with a vote scheduled for October.
“Certainly, the Cenovus-MEG merger, or acquisition of those assets is something that’s been talked about for about a decade. Those assets fit hand in glove. Cenovus is obviously very strong in terms of its oilsands operations. Probably one of the strongest out there.”
He said he sees compelling value for Cenovus at current levels and sees the stock at a discount if the deal comes to fruition.
“If this deal goes through in its current form, we see it as about six and a half per cent accretive 2026, cash flow per share,” said O’Rourke. “We see the stock trading at about a 30 per cent discount to our intrinsic value of the combined entity, and about a nine per cent free cash flow yield to EV in 2026.”
While there is optimism for oil, O’Rourke acknowledged LNG Canada’s slow ramp-up for natural gas but sees potential for Canadian prices to rise. An oversupply of natural gas and maintenance of pipelines delayed LNG Canada to start up, according to a report from S&P Global.
LNG Canada began exporting oil to markets in Asia yet a boost in global demand has yet to be seen. O’Rourke has been trying to calculate demand.
“What we’ve been doing is sort of trying to triangulate the daily volumes based on the ship loadings and those ship loadings we’re having about once every 10 days,” said O’Rourke. “At the start of August, that has shortened to about once every five days, with the most recent loading over the weekend here. That would sort of imply that flows into the facility have gone from the range of 450 million a day, up to 700 million a day.
He remains constructive on Tourmaline Oil, highlighting its growth strategy as a de-risking event while anticipating oil prices to outperform due to crude loadings from the Organization of the Petroleum Exporting Countries and tightening diesel markets.
With files from Reuters