Why it’s safe to get back into energy stocks: Canadian oil and gas stocks still have an upside

Tyler Anderson/National PostCumberland Private Wealth Management's Peter Jackson and Sean Yuile, right, expect oil prices could climb to the US$70-$75 per barrel range by the end of 2015

Investors willing to jump into the energy sector when all seemed lost late last year have been handsomely rewarded, but Canadian oil and gas stocks and energy-related names still look like they have plenty of upside.

A big culprit behind oil’s price slide was U.S. production growth stemming from the shale boom. The oil rig count jumped to about 1,600 in 2014 from around 200 five or six years ago and production grew by roughly one million barrels per day.

But Saudi Arabia in October announced it wasn’t going to cut production, and the oil and gas rig count has since dipped to about 900 from a little over 1,900 and U.S. production will likely follow suit.

“That’s going to go a long way to help bring us back to a supply-demand balance,” said Peter Jackson, Cumberland Private Wealth Management’s chief investment officer, who oversees about $2.2 billion in assets for high-net-worth individuals and families.

Another reason to be optimistic about oil is that the global demand picture has returned to its normal historical growth range of between one and 1.5 per cent. Although Iranian production is coming back into the market, Jackson noted that detailed agreements regarding the country’s nuclear program need to emerge before that will happen in a meaningful way.

It’s for these reasons that Jackson and his colleague Sean Yuile expect oil prices could climb to the US$70-$75 per barrel range by the end of 2015. It’s also why the portfolio managers have boosted the energy weighting in Cumberland’s Canadian equity strategy to about 21 per cent from roughly 14 per cent at the beginning of 2015.

One way they’re playing the rebound in oil prices is directly through names such as Cenovus Energy Inc. (CVE/TSX), Suncor Energy Inc. (SU/TSX) and Pembina Pipeline Corp. (PPL/TSX).