The Canadian Dollar is a petro-currency.\u00a0 As oil goes, so does the loonie.<\/p>\n
Until now.<\/p>\n The historic correlation between oil and the Canadian dollar has long been accepted.\u00a0 But over the last couple of years, and this year in particular, that correlation has entirely broken down.<\/p>\n Source: XM.com<\/em><\/p>\n Why?<\/p>\n It\u2019s the economy stupid.\u00a0 Even a healthy oil market can\u2019t help Canada right now.<\/p>\n There are a few things at play.<\/p>\n Laura Cooper, head of FX solutions and strategy at RBC Wealth, says that pipeline constraints are the culprit.\u00a0 The lack of growth is keeping a lid on bullish oil sentiment and with it, any appreciation of the loonie.<\/p>\n Second, as Poloz hinted and many other economists have said, the Canadian economy is just not doing that well.<\/p>\n As famed economist David Rosenberg recently pointed out, Canadians are taking more part time jobs, racking up more debt, and seeing very little income growth.\u00a0 Meanwhile the last federal budget did nothing to fix the real problem \u2013 declining productivity.<\/p>\n \u201cDeclining productivity\u201d \u2013 that\u2019s just another way of saying we are getting less competitive.<\/p>\n Which is exactly what you\u2019d expect to happen with Justin\u2019s policies.\u00a0 It all means dim prospects for the loonie.<\/p>\n \u201cWe\u2019re basically looking at a situation that is very difficult to find any positives for the Canadian dollar overall,\u201d said TD currency strategist Mazen Issa \u201cIn fact, it\u2019s probably going to continue to get worse.\u201d<\/p>\n But wait.\u00a0 It\u2019s not all bad news.\u00a0\u00a0 The weak dollar is a BOON for oil companies.<\/p>\n Every cent of decline is another dollar in producers\u2019 pockets.<\/p>\n Based on historic norms I would wager that with WTI at $65\/bbl the loonie should be at around 85 cents right now.\u00a0 Instead it\u2019s below 75 cents.<\/p>\n That difference equates to a $10\/bbl lift in prices for Canadian producers.<\/p>\n Subtract some royalties and the rest of that drops straight to cash flow.<\/p>\n By way of example, let\u2019s take MEG Energy (MEG-TSX)<\/strong>.<\/span>\u00a0 It’s a highly levered, mid-tier oil producer.\u00a0 MEG generates a whopping $350 million in additional cash flow with the Canadian Dollar at 75 cents versus if it was at 85 cents.<\/p>\n Meg Energy has a $2 billion market capitalization.\u00a0 That means that MEG is getting 15% free cash flow \u2013 directly from Justin!<\/p>\n This is just one example.\u00a0 I could go down the list of Canadian oil companies and give you the same sort of numbers:\u00a0 Crescent Point, Cenovus, Whitecap<\/span>,<\/strong> and so on.<\/p>\n All that cash.\u00a0 Stuffing their coffers.\u00a0 They owe Justin so much<\/em>.<\/p>\n But what thanks does he get?\u00a0 How is he repaid for squashing the Canadian economy, killing productivity, just at the time when oil prices start to take off?<\/p>\n He gets nothing. No love. Life\u2019s just not fair. EDITORS NOTE:<\/strong>\u00a0<\/span> Several OGIB companies are reporting INCREDIBLE Q1 numbers.\u00a0 If you’re not already a paid subscriber to OGIB, it’s time to get the BEST energy stocks working for you \u2013 take a risk-free trial starting TODAY \u2013 Click HERE.<\/strong><\/a><\/p>\n![\"1\"](\"https:\/\/oilandgas-investments.com\/wp-content\/uploads\/2019\/05\/1.jpg\")
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\nKeith Schaefer
\nPublisher, Oil and Gas Investments Bulletin<\/em><\/p>\n