Analysts question whether demand and private capital exist to fill Canada's new oil lines
The S&P/TSX Composite climbed 0.9 percent Friday after Ottawa backed a new West Coast oil pipeline, then slipped 0.18 percent Monday as gold and crude retreated.
The two-session swing shows how much a fresh wave of pipeline proposals is moving Canadian equities and how quickly the enthusiasm can cool.
Friday's advance was broad, according to Bloomberg, with roughly four stocks rising for every one that fell and all 11 sectors of the benchmark higher.
Precious-metals names led.
GFL Environmental ranked among the top performers as the company weighs a take-private transaction, Bloomberg reported, while Aecon Group rose after Raymond James upgraded the stock on a data-centre contract.
US cash markets were shut for the July 4 holiday.
Prime Minister Mark Carney supplied the catalyst, tapping government-owned Trans Mountain Corp to build a pipeline carrying up to a million barrels a day from Alberta's oil sands to a Vancouver-area port, with Ottawa also weighing faster regulatory approval.
Derek Holt, Scotiabank vice-president and head of capital markets economics, welcomed the pace in a Friday note.
"This is fast, for Canada!" Holt wrote.
The optimism faded Monday.
The materials index fell 2.2 percent and the gold index 1.7 percent as bullion retreated, Reuters reported, sending I-80 Gold down 7 percent, Endeavour Silver down 3.5 percent and Eldorado Gold down 2.7 percent.
The energy index slid 1.2 percent as crude fell after OPEC+ agreed to raise output targets from August.
Gold's weakness has defied the setup, said Josh Sheluk, chief investment officer and portfolio manager at Verecan Capital Management.
The backdrop of high inflation, volatility, and geopolitical conflict "sets up for a pretty good market for gold," Sheluk told Reuters.
Yet that has not played out so far, he said.
The same Monday brought a second megaproject.
Alberta Premier Danielle Smith and Ontario Premier Doug Ford proposed a 3,300-kilometre line from Hardisty, Alberta, to refineries in Sarnia, Ontario, that would carry 500,000 barrels a day with room to expand to 800,000.
The provinces named no builder, cost or timeline, and such projects typically need a private proponent, as per Reuters.
For advisors weighing the energy trade, the gap between political momentum and commercial reality is the sharper question.
"I don't see the demand for this line," said John Jeffrey, chief executive of Saturn Oil & Gas, according to the Financial Post.
He doubted enough supply would come online in the next 10 years to fill the proposed routes.
Private backers have stayed on the sidelines.
Moshe Lander, a senior lecturer in economics at Concordia University, said industry had shown little appetite even after an earlier provincial agreement.
Private companies "aren't stepping forward" to say they need pipelines or will fund them, even after the memorandum of understanding months ago, Lander told the Financial Post.
"Nobody came forward," he said.
Cost deepens the caution.
The West Coast line could run up to $43bn, and Charles St-Arnaud, chief economist at Servus Credit Union, said the longer west-east route could cost about twice that.
"That's a lot of capital to be committed up front," St-Arnaud said.
The proposed line echoes Energy East, the roughly $15.7bn project TC Energy, then TransCanada, cancelled in 2017 after opposition in Quebec and a regulatory move to weigh its emissions.
Not every read was cautious.
Jeremy McCrea, an energy analyst at the Bank of Montreal, doubted every proposal would proceed but said their sheer number could shift sentiment.
"More projects that are starting should give investors more optimism that one of these will go through to the finish line here," according to McCrea.
The macro backdrop stays supportive for now.
The benchmark sat near a record last week, Reuters reported, helped by easing Middle East tensions and fading expectations of US Federal Reserve rate hikes after a soft American jobs report.
Traders are pricing one US rate increase by year-end, per LSEG data, while the Bank of Canada is expected to hold rates at its July 15 decision.
