TORONTO (CU)_Amid a global awakening on the need to minimise global warming and climate change, many countries have launched plans to phase out fossil fuels over the coming decades in order to achieve carbon neutrality by 2050. Against such a background, a prominent Canadian portfolio manager told BNN Bloomberg that despite being the fourth-largest oil producer in the world, the North American nation is turning its back on the oil sector right now.
“Canada is hostile to oil right now,” Brian Madden, senior vice-president and portfolio manager at Goodreid Investment Counsel, said in a broadcast interview. “Oil, especially exploration and production, is not the must-own sector of the Toronto Stock Exchange that it used to be. The sector is a shadow of its former self.”
Pointing to Canada’s “tone” on the green economy, with carbon taxes and the increasing difficulty to building pipelines, among others, Madden noted that the current climate is unfriendly for investors. “Furthermore, there’s the rise in ESG (environment, social and governance) investing which is increasingly costing companies capital, and compressing their valuation,” he added. “This is not a knock on Canada; more so the oil patch in general. But Canada has probably got all that [activism against oil companies] and more on steroids given the political climate here.”
The prominent portfolio manager made these comments amid growing anxiety in the oil sector after talks between the Organization of the Petroleum Exporting Countries and its allies fell apart on account of a disagreement between Saudi Arabia and the UAE this week, which left investors guessing on global demand and output. Meanwhile, on Thursday (8 July), oil prices fell for a third day, with Brent crude oil futures down 43 cents to $73 a barrel.
“Unless we think the commodity is going back to US$150 a barrel again, which we don’t, we think we’re kind of at the top of the trading range bounded by $40 on the low end and $80 on the high end,” Madden noted. “The direction of the commodity tells you 95 per cent of everything you need to know about the direction of the stock price for these producers.”
