Investing.com — TD Cowen has raised its oil price forecasts and identified opportunities among Canadian producers, as persistent Middle East supply risks and strong refining margins support cash flows, while widening discounts on Canadian heavy crude highlight the need for additional pipeline capacity.
The brokerage raised its West Texas Intermediate (WTI) price assumptions to $85 a barrel for 2026, $78 for 2027 and $72 for 2028, while maintaining its long-term forecast at $65. Renewed U.S.-Iran hostilities and uncertainty over shipments through the Strait of Hormuz have made the outlook increasingly volatile, although a potential global supply surplus in 2027 remains a downside risk if Middle East production and exports normalize.
For Canada’s Western Canadian Sedimentary Basin (WCSB), the outlook is increasingly shaped by the gap between higher global oil prices and weaker realizations for heavy crude. TD Cowen raised its Western Canadian Select (WCS) differential assumptions to $15.50 a barrel for 2026, $17 for 2027 and $16 for 2028, citing rising Venezuelan imports into the U.S. Gulf Coast, refinery disruptions, growing thermal oil production and high pipeline utilization.
The wider discounts could limit the benefits of stronger benchmark prices for Canadian heavy oil producers, particularly those with concentrated exposure to WCS and limited access to alternative markets. TD Cowen said proposed pipeline expansions could materially improve export capacity over the longer term, but producers remain exposed to near-term pricing pressure as existing infrastructure operates close to capacity.
Despite near-term risks from heavy crude discounts and weak regional gas prices, TD Cowen remains constructive on Canadian energy equities, favouring companies with strong balance sheets, attractive free cash flow yields, refining exposure and credible long-term growth opportunities.
The brokerage expects refining strength to provide a partial offset. Low refined-product inventories and global refinery disruptions are supporting elevated crack spreads, favouring integrated Canadian producers that combine upstream production with refining operations. Although the Line 5 outage affected third-quarter downstream operations at Imperial Oil and Suncor Energy, TD Cowen said strong underlying refining conditions should more than offset the disruption.
TD Cowen increased its 2026 and 2027 cash flow per share estimates by about 5% and 6%, respectively, with the largest revisions generally among integrated producers. It also raised price targets for several Canadian energy companies, reflecting higher oil assumptions, although wider heavy crude discounts partly offset the gains for companies with significant WCS exposure.
Canadian Natural Resources received a higher price target of C$82 from C$73, while Cenovus Energy’s target rose to C$55 from C$50. Suncor Energy’s target increased to C$125 from C$116, and Imperial Oil’s to C$158 from C$151. The brokerage maintained its existing ratings on the four companies.
Beyond commodity prices, TD Cowen sees potential support for Canadian producers from proposed federal tax changes and possible Alberta royalty concessions. The proposed Productivity Mega Deduction could accelerate tax deductions on eligible capital spending, reduce near-term cash taxes and improve project economics. Potential Alberta royalty changes, expected to be a further catalyst, could also improve the returns on new oil sands developments.
The brokerage expects Western Canadian oil growth to proceed through staged expansions of existing projects, with upstream investment aligned with pipeline and carbon-capture infrastructure to avoid production outpacing takeaway capacity. It also expects further consolidation as producers seek to combine long-life resource inventories with the operational capabilities needed to develop them.
Natural gas remains a near-term challenge. TD Cowen cut its 2026 and 2027 AECO price forecasts by 5% and 18%, respectively, citing elevated regional storage levels and a potentially weaker winter demand season. The brokerage expects longer-term support from LNG expansions, data-centre power demand and rising condensate requirements, but warned that continued supply growth could delay the recovery.
Original Article
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Source: finance.yahoo.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
