We are only a few months in to 2018 and the news surrounding energy stocks and ETF’s have not been exciting.
Since the middle of 2014, Canadian energy has been suffering tremendously. For the last half of 2014 and all of 2015, many Canadian energy assets had dropped significantly losing nearly half their value on average. During the year 2016, Canadian energy was trying to make a comeback. However, the first half of 2017 happened and removed all of the growth that occurred in 2016. During the remaining months in 2017 there had been some moderate growth in Canadian energy which brings us to 2018.
At the beginning of 2018, if we look at ETF XEG.TO, it was sitting at the same price point that it was sitting at in the middle of 2016. XEG.TO is a great ETF to use as a benchmark to identify how Canadian energy has been performing. At the end of January and in to February there was yet another pull back that brings XEG.TO close to the 2 year low. Since then there has not been much movement. What is holding back Canadian Energy?
2018 has been a struggle for a couple major reasons. Markets generally do not like uncertainty, a predictable outcome has a much better end result. Due to some political uncertainty, Canadian energy has been unable to advance even with higher oil prices.
Firstly, there is many concerns that the transportation of oil and gas is responsible for the struggles in Canadian energy. Being able to transport oil and gas to market remains as one of the major factors for the western Canadian energy market. To solve this problem, the Canadian government would have to expedite a solution.
Secondly, crude oil and petroleum are Canada’s biggest exports to the U.S. If NAFTA were to be renegotiated to have a negative effect for Canada, this too can be dangerous for Canadian Energy.
Only when these uncertainty’s become certain can we predict what will happen to Canadian energy. Until then we must make certain that we keep our portfolios diversified and balanced. We do not want to hold a significant amount of Canadian energy assets, however we do want to have exposure. The future can be positive, however I don’t think it is something that will happen quickly.