Ninepoint Partners' Eric Nuttall explains why energy stocks are poised for significant growth despite prevailing myths
Eric Nuttall, senior portfolio manager at Ninepoint Partners, remains optimistic about energy stocks despite misconceptions and skepticism.
In an exclusive feature by Wealth Professional, he explains why he believes the energy sector is poised for significant gains.
Nuttall highlights several false narratives that have negatively impacted the energy sector. Firstly, there is a belief that short-term oil demand is weak due to fears of an impending recession and that medium-term demand will decline with the rise of electric vehicles (EVs) and environmental measures.
He counters this by noting predictions from the International Energy Agency, which suggest that oil demand will peak later this decade.
Secondly, Nuttall addresses concerns about surging US shale production, which led to fears of market imbalance. He clarifies that corporate guidance indicates more modest growth rates going forward, suggesting that 2023 was an anomaly.
Thirdly, he discusses concerns related to OPEC+ and its market strategies. Despite successful market management, there is fear that US production growth could provoke OPEC+ to flood the market.
However, as of January 2024, Saudi Arabia's Aramco announced a halt in plans to expand its oil production capacity, which could stabilize the market.
Nuttall remains bullish on the sector, particularly in Canada, citing companies like Veren Energy, Cenovus, and Baytex as promising. These companies have adopted strategies to moderate growth and maximize free cash flow, leading to significant share buybacks.
Economic factors are also driving oil demand, with natural gas producers anticipating a significant spike due to the growing influence of artificial intelligence and increased electricity consumption.
Nuttall points out that long-term oil demand is driven by population growth and rising living standards in non-OECD countries. He emphasizes that the energy transition away from traditional fuels will take much longer than policymakers suggest, making natural gas a significant beneficiary.
Energy companies have become top dividend payers due to efforts to moderate growth, maximize free cash flow, and buy back shares. Nuttall asserts, “The best opportunities remain in Canada.”
He believes that the false narratives surrounding energy stocks are a short-term phenomenon and expects the sector to perform well in the coming years.
