BMO bullish on Canadian energy names, despite WTI price weakness

Randy Ollenberger, managing director and oil and gas equity research at BMO Capital Markets, joins BNN Bloomberg to share his outlook on energy stocks.

West Texas Intermediate crude prices bucked a three-day downturn Wednesday, rising after a report from the U.S. Energy Information Administration showed gasoline inventories are at the lowest level since May.

But crude’s gains could be short-lived according to one veteran oil analyst, saying WTI prices are not likely to surpass US$85 per barrel again this year.

“We expect crude oil prices to remain relatively range bound over the balance of the year amid tepid demand growth,” says Randy Ollenberger, managing director of oil and gas equity research at BMO Capital Markets, in an interview with BNN Bloomberg on Wednesday.

He expects oil to trade within a range of $80 and $85 for the rest of the year.

Ollenberger attributes this stagnating price to disappointing gasoline and diesel demand from the United States and slowing growth in China.

“It’s just going to take a little bit longer for the market to tighten. We expect this to probably persist through 2025 and expect the market could start tightening up in 2026 as we get better demand numbers,” says Ollenberger.

Long-time oil bull Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, is in the same camp, believing this year’s range-bound oil prices will continue into the next year. In an interview with BNN Bloomberg on Monday, Nuttall says “we don’t see oil surpassing $80-$85 from now until the end of 2025,” calling it a reasonable trading range for the commodity.

Canadian natural gas prices under pressure

Oil isn’t the only energy commodity seeing price pressure from excess supply right now.

“We’ve got too much natural gas being produced and that surplus of gas is going into storage,” Ollenberger said. “In the short-term, Canadian natural gas is under tremendous downward pressure.”

However, this surplus could be setting up Canadian natural gas for outperformance in the next year, according to the analyst.

“The reason we have too much gas being produced is companies are getting ready for ‘LNG Canada’ (a large-scale LNG export facility), which we believe will start up at the end of this year and wrap up through 2025.”

“Once that happens, we expect the market to trade-up dramatically and in fact we think Canadian natural gas prices will outperform U.S. gas prices.”

Bullish on Canadian energy

Despite challenges to prices, Ollenberger believes it is a good time to invest in select commodity players.

“The sector remains under-owned and under-appreciated in our view,” he says.

“This year we’re off to a good start. This reflects the realization by many participants in the market that many of these companies are in a position to start shovelling more cash back to shareholders through incremental dividend growth and also by very aggressive share buyback programs,” notes Ollenberger.

He suspects oil price volatility and geopolitical uncertainty may have kept some investors at the sidelines over the past year, but is hopeful this trend is about to change. Ollenberger says oil prices can remain at these levels even if geopolitical turmoil settles down, which he believes would give wary investors the assurance needed to invest, rallying stocks higher.

“We see some investors positioning for that [scenario] but we don’t think enough have, so we’re still expecting more upside for the group,” says Ollenberger.

For gas producers, he favours ARK Resources, Tourmaline and EQT Corp.

In oilfield services, he likes American energy company Baker Hughes.

“We are anticipating higher levels of [oil field] activity particularly here in Western Canada as companies have to drill more wells to bring on more production and keep LNG Canada full, that’s also true in the United States. Once those LNG projects come online we expect to see more drilling activity in places like Haynesville and that’s good for oil field services companies.”

Off to the Stampede

Ollenberger is heading to the Calgary Stampede following this interview Wednesday, saying it’s a good chance for investors in the oil and gas industry to collaborate.

“There is a tremendous number of investors in town for the Stampede,” he says, noting investor conferences available throughout the week. “It’s a good chance to get out and reconnect with corporations that have come into town for these events.”