The period of seasonal strength in the Canadian Energy sector is approaching. How is the sector setting up this year?
The period of seasonal strength for the Canadian energy sector is from Jan. 18 to June 15. The “sweet spot” for the trade is from Jan. 18 to May 5. Average gain by the S&P/TSX Capped Energy Index from Jan. 18 to June 15 during the past 11 periods is 10.0 per cent. The trade has been profitable in nine of the past 11 periods versus a 2.0 per cent gain per period for the S&P 500 Index and a 4.5 per cent gain per period for the TSX composite index.
Higher crude oil prices will help the energy equity sector. Crude oil prices bottomed at $84.01 (U.S.) per barrel on Nov. 12, established an intermediate uptrend and are now trading near five-month highs of about $94.
World demand for crude oil is increasing partially due to an improvement in world economies and partially due to colder weather than last year. Near-record low temperatures recently were seen in Eastern Europe, Russia and China. Temperatures in North America also are colder than record warm temperatures posted last winter. International influences also are likely to influence crude oil prices this spring. Tensions in the Middle East related to Iran’s nuclear bomb ambitions are likely to increase after Israel’s election on Jan. 22.
Canadian energy companies have an additional prospect. The Keystone Pipeline decision allowing construction and completion of a crude oil pipeline to the United States is imminent. Nebraska recently gave approval of an environmentally safer route. The final decision is in the hands of the State Department and President Obama. Media comments last week suggested that a favourable decision is likely to be announced in the first half of 2013. The decision will have a favourable psychological impact on the Canadian energy sector, particularly the oil sand producers that will benefit most. Not surprising, oil sand stocks such as Suncor, Canadian Oil Sands and Canadian Natural Resources have outperformed the S&P/TSX Capped Energy Index and the S&P/TSX Composite Index during the past month.
On the charts, seasonal influences have appeared earlier than usual this year. The S&P/TSX Capped Energy Index, currently at 251.11, bottomed with crude oil prices at 241.24, formed a base pattern with resistance at 250.93, and broke above the pattern last week to form an intermediate uptrend. The Index trades above its 20-, 50- and 200-day moving averages. Strength relative to the TSX Composite Index and S&P 500 Index has been positive since mid-December.
The easiest way to invest in the sector is through ownership of Canadian energy exchange traded funds that trade in Toronto. At least nine energy equity ETFs are listed. The most actively traded Canadian equity ETF is iShares on the S&P/TSX Capped Energy Index. Others include iShares Oil Sands Index Fund, BMO Equal Weight Oil and Gas Index ETF, BMO Junior Oil Index ETF, BMO Junior Gas Index ETF. Horizons BetaPro S&P/TSX Capped Energy Bull, Horizons BetaPro S&P/TSX Capped Energy Bear, Horizons BetaPro S&P/TSX Capped Energy Inverse Fund and Horizons Enhanced Income Energy Fund.
- Barclays Bank PLC iPath Exchange Traded Notes Linked to Goldman Sachs Crude Oil Total Return Index$5.77+0.07(+1.23%)
- Crude Oil Front Month Futures$44.21-0.11(-0.25%)
- iShares S&P/TSX Capped Energy Index ETF$11.16+0.01(+0.09%)
- BMO S&P/TSX Equal Weight Oil & Gas Index ETF$10.67+0.01(+0.09%)
- BMO Junior Oil Index ETF$13.47+0.24(+1.81%)
- Bmo Junior Gas Index Etf$15.110.00(0.00%)
- Horizons BetaPro S&P/TSX Capped Energy Bull Plus ETF$8.68-0.01(-0.12%)
- Horizons Betapro S&P/Tsx Capped Energy Bear Plus Etf$14.57+0.01(+0.07%)
- Horizons Enhanced Income Energy ETF$13.55+0.06(+0.44%)
- Updated May 4 10:11 AM EDT. Delayed by at least 15 minutes.