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  5. CNQ: Hi, Oil and Gas sector has come under pressure for past two weeks, with above equities declining 20-30% from their respective highs. [Canadian Natural Resources Limited]
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Q: Hi, Oil and Gas sector has come under pressure for past two weeks, with above equities declining 20-30% from their respective highs. Volatility in oil and gas prices could be a reason and other days, it could simply be in sympathy with general markets.
This is in the backdrop of analysts forecasting very strong cash flow generation by all these companies, resulting in outsized shareholder returns and much higher equity prices. We have 10% weighting in the sector ( Not including 5.5% ENB ). Based on the geo-political, demand/supply and other relevant factors, do you believe, this sector still has legs, say another 6-12 months or longer and equities should recover over time. Also, what would cause, in your opinion, for market to change course for this sector, in near future. Thank You

Asked by rajeev on June 20, 2022
5i Research Answer:

We think the sector still has some legs, and would consider the recent move fairly normal after such big gains. China/recession fears may continue to weigh on sentiment, but the sector has largely priced in a recession, anyway, already. The Ukraine war will have the biggest influence, one way or the other, with China next. Investors are expecting a global recession, so any good news would likely keep things bouyant. We think some exposure is certainly still justified. Valuations are low, dividends are increasing.