Is optimism returning to the Canadian oil patch? – Energy stocks have record setting run following positive catalysts

2025 has been quite the year, and it’s only 10 days old.

As of today’s close, the Canadian energy sector as judged by the flagship XEG.to (iShares S&P/TSX Capped Energy Index) ETF has gone a record setting 13 days in a row without a down day. While some might be able to find a prior incidence of this occurring, we were not. Of course it’s quite likely that this streak will come to an end now that we’ve mentioned it (never tell a pitcher they have a no-hitter going!), but there have been a number of interesting developments over the last couple of weeks that are worth highlighting, as this streak indicates that optimism may be returning to the Canadian energy sector:

• The resignation of Justin Trudeau, the first step in “the beginning of the elimination of the political risk discount being applied to our stocks” (Eric Nuttall quote from BNN Bloomberg interview).
• New Russian sanctions, combined with inflationary expectations returning as oil prices set multi-month highs.
• The expectation of LNG Canada startup mid-2025. While expectations have not changed in the last couple of weeks, this is something that will be extremely significant for Canada.
• US natural gas prices near 2 year highs on record LNG feedgas. While Western Canadian natural gas prices remain subdued, will this gap close as LNG Canada exports begin?
• Continued tight heavy oil differentials, with WCS recently trading in the -$12.20/bbl discount to WTI range. The completion of TMX earlier in 2024 certainly seems to be having the desired effect of lowering the volatility in Canadian heavy oil pricing.

Chart courtesy of StockCharts.com