(Bloomberg) -- President Donald Trump’s repeated threats to slap steep tariffs on Canada and other friendly nations have left Toronto with some of the world’s worst-performing oil and gas stocks.
A steep run-up in oil prices has pushed the energy sector on top of the leader board in the S&P 500 Index this year. However, Canada’s oil and gas stocks have missed out on much of the gains and have trailed their US peers, with the S&P/TSX Composite Energy Index rising nearly 4%, compared to 8.6% in the US.
The Toronto-listed group fell Tuesday after Trump said he was targeting Feb. 1 for tariffs, sending the country’s largest oil and gas producer Canadian Natural Resources Ltd. falling as much as 5.5%, setting up its worst day since October.
It’s not just US energy stocks that peers up north are trailing. Canadian natural gas pipeliner Keyera Corp. is the worst-performing stock in the MSCI World Energy Index this year, and six other Toronto-listed names make the top-10, including Cenovus Energy Inc., ARC Resources Ltd., Canadian Natural, Tourmaline Oil Corp. and Pembina Pipeline Corp.
Last week, after it emerged that Trump reportedly told Alberta Premier Danielle Smith that Canadian oil would be hit with tariffs, US energy stocks outperformed their peers up north by 6.3 percentage points, the most since November 2020.
“Without a doubt, the tariffs issue is probably 90% of it,” BMO Capital Markets analyst Randy Ollenberger said of the divergence between Canadian and US energy stocks, adding that for investors “the uncertainty is just not worth the risk” of buying the Toronto-listed names. “If you want to express a view on oil and gas, you can do that by buying a US oil and gas company,” he said.
The threat of tariffs continues to hang over the stocks in Toronto as traders are also betting against Canadian energy names in greater numbers than the US. Short interest in Exxon Mobil Corp., for instance, is hovering near 0.9% of shares outstanding, while its 69% owned Canadian affiliate Imperial Oil Ltd. is seeing short interest hover at 4.1% in Toronto and 10% for its US-listed shares.
Some analysts warn that the sector may have more room to fall. Toronto-listed oil producers, including Veren Inc., may fall as much as 12% if Trump moves ahead with his 25% tariffs on Canadian oil and those tariffs remain in place for a year, TD Cowen analysts Aaron Bilkoski and Menno Hulshof wrote last week. In a note to clients, they said the stock prices had so “assumed a very low probability these tariffs will be implemented.”
Indeed, investors should consolidate “Canadian oil and gas equity positions toward the highest quality companies,” RBC Capital Markets analysts wrote in a Friday note, citing the 2025 outlook for the group is “less compelling” than 2024 and the stocks face “policy uncertainty in Canada and the US.”
(Updates with Tuesday trading in Toronto, notes Trump’s plans for tariffs on Feb. 1.)
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