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Canadian Natural Resources has a problem. As the largest seller of heavy Canadian crude, CNQ (CNQ-T) has the most to lose since Canadian oil trades at more than a 20-percent discount to its U.S. counterpart, West Texas Intermediate (WTI).
And investors have taken note, as CNQ's stock is down more than 11 percent since February, compared to the one-percent average drop for other major oil companies.
But analysts at Canaccord Genuity expect the spread between WTI and Canadian oil will begin to close as a number of refineries in the U.S. shut down for maintenance, setting shares of CNQ up for a rebound.
And as Enbridge moves ahead with its plan to reverse the Seaway pipeline from Cushing, Oklahoma to refineries on the Gulf Coast, the excess demand at Cushing will begin to ease and will also help to close the gap in pricing, Canaccord says.
The analysts also expect that a return to full production at CNQ's troubled upgrader, Horizon, will act as a catalyst for the stock to move higher. They say CNQ may finally be getting ahead of problems at Horizon.
Upgraders are similar to refiners, as they take heavy Canadian oil and turn it into a lighter, synthetic crude, which can then be refined into common products such as gasoline.
"The market is taking a more cautious view on Horizon and this provides another opportunity for the stock, in our view. To that end, a recent meeting with CNQ revealed that the third party consultant is making a thorough forward looking review of Horizon procedures and operations not just to see what went wrong but to anticipate what can go wrong," Yuri Lynk says.
Canaccord has a $50 price target on CNQ and a 'buy' rating.