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Canadian stock markets capped the year -- and the decade -- on a high note as oil briefly touched $80 US on the final trading day of 2009.

 

The Toronto Stock Exchange's main index gained 29 points to finish 2009 at 11,746.11, up some 30 per cent after a devastating performance in the early part of the year. It was the best 12-month period for Canadian stocks since the early 1980s.

Information technology was the top performer, gaining 45 per cent, but the oil and gas subgrouping managed to outperform the broader market with an impressive 40 per cent gain, said Martin Molyneaux, the head of Calgarybased FirstEnergy Capital's research department.

Despite some "remarkable performances," 2009 was less positive for natural gas producers and integrated oil companies with significant downstream refining operations, he added.

"In a nutshell, if you were on the oil side of the equation you had a good year. If you were on the gas side, it was tough."

Benchmark crude prices closed the year at $79.36 a barrel after hitting a session high of $80.05. At 78 per cent, 2009's increase was the highest annual gain this decade and the second highest since 1999.

The rate of increase is expected to slow, but oil prices are expected to average $85 US a barrel in 2010, according to a year-end research report by Barclay's Capital in London.

"We expect 2010 to be a year of transition between the demand concerns of 2009 and the supply concerns of 2011, with, in addition, geopolitical developments having a heightened importance," it said

Although it won't be a record, Barclay's expects 2010 will mark the second-highest average annual price of $85. Prices are expected to start climbing higher in the second half of the year as demand growth from countries such as China begins to alter the global supply-demand balance.

"To achieve that annual average of $85 per barrel is likely to involve the market having a quick look at, and above, $100 per barrel," it said.

Canadian oil producers stand to be the big beneficiaries after a volatile year that saw stocks fall early, steadily recovering through the final three quarters.

Among big caps, Nexen Inc. had a banner year, appreciating about 58 per cent from its February lows to round out the year at $25.22, up four cents on Thursday.

Suncor Energy, which merged with Petro-Canada in 2009 in to form Canada's largest integrated oil company, rose some 57 per cent after February to close the year at $37.21 compared with a 52-week low of $21.15.

Other Calgary-based companies with strong finishes included Canadian Oil Sands Trust, which gained 56 per cent to finish at $29.91. Talisman Energy gained 50 per cent after struggling through the first quarter. On Thursday, the stock lost three cents to close the year at $19.69 compared with its 52-week low of $9.92 set in February.

After a successful commissioning of its Horizon oilsands mine, Canadian Natural Resources gained 47 per cent through the 12 months to finish 2009 at $76.

If 2009 had some big winners, other big names failed to catch the same spark.

EnCana's successor companies posted a combined return of about four per cent after taking into account the split that took effect at the start of the month.

The new gas weighted EnCana finished the year at $34.11, up from $29.89 when it began trading as a stand-alone company on Dec. 3. Cenovus Energy finished the year at $25.20, up slightly from its $25 issue price.

Less impressive were Husky Energy and Imperial Oil, which each fell slightly year-over-year. On Thursday, they closed at $30.08 and $40.66, respectively, compared with $30.87 and $40.99 on Dec. 31, 2008.

"I was somewhat surprised given both have a lot of oil," FirstEnergy's Molyneaux added. "For the refining side of the business, it was a tough, tough year."

The main themes for 2010 will be continued uncertainty in natural gas, but more stable oil pricing depending on geopolitical factors and the speed of the global economic recovery, said Alan Knowles with Haywood Securities in Calgary.

"We're not bullish on gas," he said in an interview. "I think there's a lot of seasonality in the prices we're seeing right now. On the oil side, we'll see some volatility around the $70 (US) mark, but $70 to $80 is reasonable."

As producers gain confidence that the recovery is real, merger and acquisition activity should pick up through the year, he said. A round of reserve reports due in February will underpin valuations used to make deals.

Knowles said to look for continued consolidation in the Bakken oil region of southeast Saskatchewan, where companies such as Petrobakken are establishing themselves as major players.

On the international front, Niko Resources has had some success in India and will spud a series of potentially high impact exploration wells in Kurdistan an Indonesia.

Source: Ottawa Citizen

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