Canadian energy stocks usually follow world oil markets, with share prices rising whenever crude prices rise – and vice versa. This year, though, the link between the two has grown much weaker.
Data compiled by Bloomberg show that the ratio of the iShares S&P/TSX Capped Energy Index Exchange Traded Fund (ETF) to West Texas Intermediate (WTI) crude oil has dropped to the lowest level ever recorded. Since early 2019, WTI prices have gained about 20%, while the Canadian energy fund has lost about 10%, the news agency explained.
The iShares S&P/TSX Capped Energy Index ETF has been under pressure this year, according to TD Securities. Analysts for the investment bank wrote in a report that Canadian energy stock prices were taking a beating because of flagging interest in tar sands projects, constraints on pipeline capacity, and problems in the regulatory environment.
The report quoted Menno Hulshof, TD Securities’ director of institutional equity research, as saying that he could not predict whether or when conditions might change. “Calling the timing of a potential mean reversion of this ratio is difficult,” Hulshof said.