OiL STOCKS: Strong 4Q Results from Canadian Oil Produce

Desjardins Securities predicts strong fourth-quarter results for oil-weighted Canadian producers.

But the investment firm also anticipates Canadian integrateds — companies like Imperial Oil Ltd. (IMO) and Husky Energy Inc. [HSE/TSX] that produce oil and also refine it into fuel products — will feel the effects of refining margins falling off as much as 55% between the third quarter and fourth quarter.

Oilpatch results from Q4 will begin rolling in this week when large, integrated oilsands producer, Suncor Energy Inc. (SU), reports on Tuesday.

Increases in all of the upstream benchmarks tracked by Desjardins have offset the negative impact of the rising Canadian dollar, which eats into revenues of firms that produce in Canada.

Prospects for oil producers look good in the months ahead. Desjardins boosted its 2008 average oil price estimate from $75.68 for a barrel of benchmark West Texas Intermediate to $80.

Strong 4Q

Overall, net asset values in Desjardins’ coverage universe increased 2% while the upgraded oil price outlook adds 3% to earnings per share estimates.

Desjardins said with continuing negative sentiment regarding the United States economy, oil prices are “clearly at risk of further declines.” However, it also believes global demand growth for oil will significantly outstrip non-OPEC supply in the medium term, even in the case of a U.S. recession.

Oil, therefore, will continue to trade in a high and volatile range between $70 a barrel and $100 a barrel, Desjardins said.

Oil stocks were battered towards the end of last week, but a further selloff in the sector could create “a strong buying opportunity for the group,” Desjardins said.

FP Trading Desk
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