Oil prices shot up on Friday amid a profusion of positive news, including signs that an economic recovery is underway, and indications a fractious oil cartel led by Saudi Arabia would meet this weekend to extend production cuts.
The fresh batch of positive news boosted a number of battered Canadian oil and gas stocks.
Husky Energy Inc. climbed 16.4 per cent to $5.33, Suncor Energy Inc. rose 10.5 per cent to $28.57, Cenovus Energy Inc. was up 8.5 per cent to $7.05, Imperial Oil Ltd. was up 5.19 per cent to $24.74, and Canadian Natural Resources Ltd. rose 5.3 per cent to $28.86.
Smaller players Surge Energy Inc. (up 30.6 per cent), Baytex Energy Corp. (up 25.4 per cent) and Athabasca Oil Corp. (up 18.4 per cent) also enjoyed a strong spike as the rally lifted most energy stocks.
The S&P Capped Energy Index led the wider TSX market, up 7.9 per cent on the day. The energy index remains down 41.4 per cent year to date.
The gains were attributed to a number of factors including a stronger than expected jobs report on Friday. Canada added 290,000 jobs while the U.S. saw 2.5 million jobs created last month, while the jobless rate fell to 13.3 per cent in May from 14.7 per cent in April.
The Organization of the Petroleum Exporting Countries and its allies also helped the run by pushing up their next meeting to Saturday. The move raises speculation that Saudi Arabia, Russia and other major oil producers would extend record production cuts and help bring the oil sector into balance, after social distancing measures related to the coronavirus pandemic destroyed demand for oil.
The positive momentum pushed U.S. West Texas Intermediate index higher for the sixth straight week. The benchmark North American index jumped nearly five per cent on Friday to US$39.71 per barrel — a level at which many Canadian oil producers can break even. Brent crude futures settled up US$2.31, or 5.8 per cent, at US$42.30 a barrel, surging 19.2 per cent on the week.
Western Canadian Select crude was up nearly 10 per cent, crossing US$30 per barrel for the first time since early March.
In the United States, the S&P 500 Energy Index soared 7.5 per cent on the day, with Occidental Petroleum Corp. soaring 33 per cent, Apache Corp. up 23.6 per cent and Marathon Oil Corp. rising 17.5 per cent on the day.
“I wouldn’t say the bulls are back,” Phil Skolnick, an analyst at Eight Capital told the Financial Post. “But people are getting bullish, and getting positive.”
I wouldn’t say the bulls are back. But people are getting bullish, and getting positive
In a presentation to investors published on Friday, the New York-based analyst who covers Canadian oil producers wrote he believes the “worst demand destruction is behind us.”
During the pandemic, as people stayed home and passenger air travel essentially ceased, global oil demand dropped by about 23 million barrels per day in April, with aviation demand dropping 70 per cent, and gasoline demand dropping 50 per cent, according to Skolnick.
“We’re now coming out of that period of demand destruction,” Skolnick said.
In China, he said demand for oil increased by about three million barrels per day in late April, giving analysts a sense of what a North American recovery could look like.
With summer starting, there are signs that gasoline demand is rising in North America, he said.
Many Canadian oil producers are also gradually beginning to ramp up production after shocking drops in oil prices forced cuts. While not all oil projects in Canada are breaking even at current prices, most are at least covering operating expenses, according to Skolnick.
A better picture of the downturn in recent months was also emerging. Although oil futures turned negative earlier this year, it was largely a “financially driven” phenomenon, as certain funds unwound positions, he said.
Nonetheless, headwinds remain for the sector. Passenger airline travel is projected to remain far off of normal levels, as much as 75 per cent by some analysts’ estimates.
S&P Global Ratings said Friday that oil and gas companies were leading global corporate defaults with 15 companies going under to date.
Nonetheless, the oil rally fits into positive signals about a broad-based economic recovery from the coronavirus pandemic.
Douglas Porter, chief economist at BMO Capital Markets, wrote he was encouraged by announcements that the North American hockey and basketball leagues plan to finish their truncated 2020 seasons, while bars and restaurants in Paris are beginning to see a return to normalcy.
“While there is little debate that the road to recovery is long, and could yet be bumpy, the first few miles have been remarkably smooth,” Porter wrote.