Amid widespread predictions of a recession in 2023, one prominent investor is taking a bullish stance on Canadian energy stocks.
Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners LP, said he sees oil demand normalizing in China and thinks it will be a tailwind for the sector.
“We remain bullish for 2023 because so many of what were headwinds last year [are] becoming tailwinds,” he said in an interview on Monday.
“China, for energy investors [and] oil investors, the pace and cadence of demand normalization within China is by far the most important and most bullish event in 2023,” Nuttall said.
However, he added that there are significant concerns regarding a future mismatch between global oil supply and demand growth.
Nuttall said he met with Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman Al Saud in the country’s capital Riyadh last week, along with other officials from Qatar.
“The dominant theme there is the recognition that as China normalizes, there is a call on U.S. shale, a call on Canadian producers, a call on the super majors. And it's a call that they can no longer answer,” he said.
INFLECTION POINT
Within the Canadian energy space, Nuttall said he sees near-term opportunities.
A major theme in 2022 was energy companies moving to pay down debt, he said, which involved “getting to leverage metrics where boards and CEOs can sleep at night.”
Nuttall said that has been mostly achieved.
“But soon in the coming months, weeks to months in 2023, we've reached that inflection point where free cash flow is no longer going to the banks, but it's coming back to us (investors),” he said.
Nuttall said that he expects oil to hit US$100 per barrel by the second half of next year and that the free cash flow yields will be “absolutely enormous.”
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