Canadian oil stocks set for 'unapologetically bullish' Q3 earnings: Analysts

Canadian oil stocks are generating optimism among analysts on Bay Street as the Trans Mountain Pipeline expansion transforms the market for Alberta's crude.

Athabasca Oil (ATH.TO) is slated to initiate the third-quarter earnings season for the sector on October 30, with larger companies Canadian Natural Resources (CNQ.TO)(CNQ) and Cenovus Energy (CVE.TO)(CVE) following the next day.

Despite North American benchmark oil prices (CL=F) declining by six percent in the third quarter compared to the previous three months, the discount on Canadian crude remained largely stable, attributed to the Trans Mountain Pipeline Expansion, which began operating in May.

“TMX is fully operational and brings structural change to the Canadian oil market, improving transport efficiency, reducing price volatility, and diversifying market access beyond PADDs 2 and 3 to PADD 5 and Asia,” wrote Scotiabank Global Equity Research analyst Jason Bouvier in a client note.

The Petroleum Administration for Defense Districts 2 and 3 represent the U.S. Midwest and Gulf Coast regions, while PADD 5 includes the U.S. West Coast, encompassing Alaska, Arizona, California, Hawaii, Nevada, Oregon, and Washington.

The Trans Mountain Pipeline Expansion adds an additional 590,000 barrels of oil per day to the connection from Alberta to the Pacific Coast. Bouvier estimates this marks the first increase in capacity in over a decade, providing ample space until mid-2027.

“During Q3/24, Alberta oil differentials narrowed and oil inventories were drawn down,” Bouvier noted, attributing this to excess egress capacity and oil sands maintenance.

RBC Capital Markets analyst Greg Pardy expressed that he is “unapologetically bullish on Canada” as companies prepare to report their third-quarter earnings. He pointed out that WTI averaged US$75.40 in the third quarter, reflecting a decrease of US$5.20, or six percent, sequentially.

“Oil price volatility is not going away, but the re-engineered model that energy producers have embraced has provided investors with a sector that possesses financial resiliency and shareholder return options like never before,” Pardy stated in a note to clients.

“The pace of buybacks may vary, but the direction of travel is unmistakable. Therefore, we remain unapologetically bullish on Canada’s oil sands majors in particular, despite a mixed macro backdrop, as companies reduce their common share counts and enhance per-share dividends over time.”

Bouvier identified MEG Energy (MEG.TO) and Cenovus as his top picks in the sector.

Pardy favors Canadian Natural Resources among senior producers, Suncor Energy (SU.TO)(SU) among integrated companies that operate both upstream and downstream, and MEG Energy as an intermediate producer.