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Oil prices have fallen about 30 percent in the last two months, as investors flock to safe have assets in the midst of an ongoing debt crisis in Europe and a slowdown in the U.S. and Chinese economies. And with that drop in benchmark oil prices, shares in Canadian-based oil companies have fallen dramatically.
For Eric Nuttall, portfolio manager at Sprott Asset Management, the pullback in oil companies has been too dramatic.
“The energy index -- this is the largest oil companies, including Suncor, Cenovus and Canadian Natural Resources -- they are 8 percent away from the trading level we were at in 2009…when oil was $40 US,” he says. “The environment then and the environment now are radically different. Today is not rosy…there are a lot of reasons to be concerned in the short term…but for stocks to be 8 percent from the lows in 2009 is ridiculous.”
Nuttall says Canadian Natural Resources (CNQ-T) has been hit particularly hard.
“CNQ has been the whipping boy of U.S. hedge funds that want to go after Canadian oil companies exposed to oil differentials…I think it’s cheap, but my caveat is we have another couple months of weakness,” he says.
Roger McKnight, senior oil analyst at En-Pro International, adds that politicians in Alberta should also be worried, as they forecast $99 per barrel oil prices in their latest budget.
“If I was the Alberta budget I would be asking ‘what’s going on here’,” he says.
He adds that many oil companies in Alberta need $80 per barrel prices to make production profitable.