BAY STREET: Gauging an entry point for energy stocks
* Economic uncertainty leaves oil prices shaky
* May present entry point to sector before demand rises
* Takeover activity will boost stocks (In U.S. dollars unless noted)
CALGARY, Alberta, June 21 (Reuters) - A lot of oil analysts say crude prices around $70 a barrel are too steep, given the tenuous state of the economy, and energy investors don't seem to want to argue yet.
By and large, Canadian energy share values reflect an oil price somewhat lower than it is, according to some experts. That could be due to a combination of risk aversion and predictions that natural gas markets will get uglier.
But it may give investors an entry point into a sector that has been beaten down from its record highs of a year ago, but has staged a decent recovery since the end of 2008.
"With oil prices having a seven in front of them, the market's assuming that there are green shoots of recovery coming out the back of the year," FirstEnergy Capital Corp analyst Martin Molyneaux said.
Molyneaux figures energy stocks reflect oil prices in the mid-$60s per barrel. U.S. oil weakened to $69.55 on Friday, after hanging above $70 for the previous eight days.
Crude prices have doubled since the start of 2009, but are still half of what they were a year ago.
"We're pretty bullish -- our outlook for oil is $75 next year. It's all about how the companies and the countries are going to spend. Nobody's increasing capital spending programs right now and, if anything, they're still going down."
That could mean a quick return to tight oil supplies as economies return to growth, fueling demand.
At a rather subdued Canadian Association of Petroleum Producers investment symposium in Calgary last week, top executives with Nexen Inc (NXY.TO), Talisman Energy Inc (TLM.TO) and others said they still lack the confidence that oil will hold its gains to fatten their 2009 spending budgets.
In a recent report, analysts at Dundee Securities cited factors such as U.S. dollar weakness and wagers on the speed at which the economic downturn ends for oil's recent gains, rather than evidence of big gains in energy demand.
Some market strategists wonder aloud if rising prices for in numerous commodities in the past month suggest speculative money is starting to flow back in.
Meanwhile, brimming natural gas inventories have kept prices for that fuel at a third of the value of a year ago. Continued...
