Oil prices, stocks no longer move in lockstep
The days when energy stocks and the price of oil moved in lockstep are now few and far between; oil may go up but stocks still fall, and in Canada it’s the worst divergence on record.
The ratio of the iShares S&P/TSX Capped Energy Index ETF to West Texas Intermediate crude oil is at an all-time low, according to data compiled by Bloomberg News.
And the so-called decoupling of energy shares from the price of WTI crude has hit Canadian stocks harder than their U.S. counterparts. Unlike in Canada, while the ratio between the iShares U.S. Energy ETF and WTI has dropped, it’s nowhere near a record low.
Crude has gained about 20% this year despite continued macroeconomic volatility, while the Canadian energy ETF slumped more than 10 per cent. The U.S. energy ETF slipped about two per cent.
Pipeline constraints, regulatory headwinds and lackluster interest in oil-sands companies are the main reasons for Canada’s slump, said TD Securities Inc. analysts led by Menno Hulshof in an Aug. 13 report.
“Calling the timing of a potential mean reversion of this ratio is difficult,” TD’s Hulshof said, adding that the firm will need to see more certainty on Enbridge’s Line 3 expansion timing, Alberta’s plan to curtail output, along with “the sheen continuing to come off U.S.” plays including Texas’ Permian Basin.