4 reasons to power your investment portfolio with Canadian energy companies

Over the last 60 years, there have been 4 other energy bull markets and each lasted an average of 92 months. During these periods, the average cumulative return was approximately 398%.

The current energy bull market started in April 2020 and, as of February 2024, has lasted around 45 months. Since April 2020, the Canadian Energy sector has experienced a cumulative return of 141%, outperforming the broader S&P/TSX Composite which returned 76%. Comparing the duration of these historical bull markets and the cumulative returns suggests it’s still in the early stages of its performance cycle. What’s more, in 2022 and 2023, energy company shareholders benefited from some of the most investor-friendly policies in the past 20 years, illustrating changing dynamics within the industry. And in the past few quarters, we’ve seen some of the largest Canadian energy producers commit to significant dividends and share buybacks.

Over the long term, one of the biggest headwinds affecting energy demand is electric vehicles (EVs). Currently the EV market has stripped around 1.8 million barrels of oil from current daily demand, representing an extremely small percentage of total daily demand at over 100 million barrels, according to the Global EV Outlook 2023 (PDF, 6.4 MB) Opens in a new window.. By 2030, we anticipate the EV market will replace around 5 million barrels of daily oil demand.

That being said, there are many reasons to forecast continued oil demand over the long term. For example, according to the US Department of Energy, throughout the last 40 years demand for oil has largely mirrored both gross domestic product (GDP) and population growth. Both are expected to continue their upward ascent. And despite a slow transition to renewables in developed countries over the next 25 years, emerging markets will continue their reliance on oil to meet their energy needs. It is comparatively cheaper than transitioning to renewables, and an easier way to increase their standard of living.

Environmental, social, and governance (ESG) considerations have seen increased popularity amongst investors over the past few years as a way of assessing non-financial impacts and leading change through engagement, voting and investment action. To learn more, read Responsible investing: 2023 recap and what to watch in 2024.

Overall, we believe any barrel of oil produced in Canada or North America is far better from an ESG perspective compared to other oil-producing countries such as Russia, Saudi Arabia or Venezuela. Many of these countries suffer from poor human rights violations and environmental standards. Although our human rights and environmental standards may be better than our competitors, we acknowledge that there is room for improvement in Canada. Carbon capture needs to be further developed, and greater detail must be shared on the roadmap to achieving 2050 federally mandated net-zero carbon goals.

Perhaps most importantly, Canada has some of the most unique oil reserve supply dynamics in the world. We have the third largest reserves globally, and the oil sands are currently responsible for over two-thirds of our overall production. The extraction of liquid natural gas (LNG) from shale in the US requires constant discovery, capital expenditure and drilling to maintain production. And while Canadian oil sands production may require significant upfront capital investment, it then benefits from a near zero production decline rate and a 50-year runway for growth.

In other words, Canadian energy companies don’t need to invest in new growth initiatives to be profitable. Even if we never have another oil sands project approved in Canada, Canadian energy producers have decades of supply available with little marginal cost, which is a definite advantage for long-term investors.

To learn more, read our full report: The continued case for Canadian energy (PDF, 1.1 MB) Opens in a new window..

CIBC Asset Management is committed to providing market and investment insights and the highest quality research. We want to help you find the right solutions to guide your investment journey. If you'd like to discuss the insights raised in this article and explore how we can help you power your portfolio with Canadian energy opportunities, get in touch with your advisor or CIBC representative anytime.