Canadian Energy Companies Get Boost From Unusual Decoupling

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An unusual decoupling between the Canadian dollar and the price of oil could prove to be a boon for the nation’s energy producers.

The loonie and the price of oil are often closely correlated, with rising oil translating to a stronger Canadian dollar, because energy is the nation’s biggest export. But recently oil has been rising and the Canadian dollar has been getting weaker, as the country’s central bank has been less aggressive about hiking rates.

“What you want is a business that has its revenues in US dollars but pays its costs in Canadian dollars, and that’s what you get with a Canadian oil company — at the same time you also get the longest reserve life in the world with the lowest decline rates in the world,” he said by phone. Local performance of energy shares may reflect the effects of decoupling. The S&P/TSX Composite Energy Index climbed 4.1% year to date through Thursday’s close in Canadian dollar terms, faring slightly better than its US counterpart, the S&P 500 Energy Index, which is up 3.3% over the same period in US dollar terms.

 

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