Canadian oil stocks set for 'unapologetically bullish' Q3 earnings: Analysts

Canadian oil stocks have analysts on Bay Street feeling bullish as the Trans Mountain Pipeline expansion redefines the market for Alberta’s crude.

Athabasca Oil (ATH.TO) is expected to kick off the third-quarter earnings season for the sector on Oct. 30, followed by larger peers Canadian Natural Resources (CNQ.TO)(CNQ) and Cenovus Energy (CVE.TO) (CVE) the next day.

While North American benchmark oil prices (CL=F) slid six per cent in the third quarter versus the prior three months, the discount on Canadian crude was largely flat, thanks to the Trans Mountain Pipeline Expansion having come on-stream in May.

“TMX is fully operational and brings structural change to the Canadian oil market, improving transport efficiency, reducing price volatility, and diversifying market access beyond PADDs 2 and 3 to PADD 5 and Asia,” Scotiabank Global Equity Research analyst Jason Bouvier wrote in a note to clients.

Petroleum Administration for Defense Districts 2 and 3 are the U.S. Midwest and Gulf Coast regions. PADD 5 is the U.S. West Coast, comprising Alaska, Arizona, California, Hawaii, Nevada, Oregon, and Washington.

The Trans Mountain Pipeline Expansion adds an extra 590,000 barrels of oil per day to the link from Alberta to the Pacific Coast. Bouvier estimates this first addition of new capacity in well over a decade will allow excess space until mid-2027.

“During Q3/24, Alberta oil differentials narrowed and oil inventories were drawn down,” Bouvier added. “This was driven by excess egress capacity and oil sands turnarounds.”

RBC Capital Markets analyst Greg Pardy says he is “unapologetically bullish on Canada” as companies prepare to report third-quarter earnings. He notes WTI averaged US$75.40 in the third quarter, down US$5.20, or six per cent sequentially.

“Oil price volatility is not going away, but the re-engineered model that energy producers have embraced has afforded investors with a sector that has financial resiliency and shareholder return optionality like never before,” Pardy wrote in a note to clients.

“The pace of buybacks may vary, but the direction of travel is unmistakable. And so, we remain unapologetically bullish on Canada’s oil sands majors in particular despite a mixed macro backdrop, as companies shrink their common share counts and bolster per-share dividends over time.”

Bouvier’s top picks in the sector are MEG Energy (MEG.TO) and Cenovus.

Pardy prefers Canadian Natural Resources among the senior producers, Suncor Energy (SU.TO)(SU) among the integrated companies that would operate both upstream and downstream, and MEG Energy as an intermediate producer.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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