Scotiabank flags ‘buying opportunity’ amid Trump tariffs #CanadaFinance

Scotiabank Global Equity Research predicts U.S. President Donald Trump’s 10 per cent tariff on all energy imports from Canada effective Feb. 4 will be short-lived, as higher energy costs pinch American consumers. For investors, analysts see an opportunity to buy certain oil and gas stocks at a discount.

Over the weekend, Trump announced a 25 per cent import tariff on all Canadian goods except energy products, which will carry a 10 per cent levy. Canada has prepared an initial response, also due to begin Tuesday, including a 25 per cent tariff on hundreds of goods originating in the United States.

The iShares S&P/TSX Capped Energy Index ETF (XEG.TO), a basket of Canada’s largest oil and gas producers, traded virtually flat in Monday’s session.

The country’s main stock index (^GSPTSE) was also little changed. Materials shares advanced. Financial stocks fell. Jefferies Group analysts say the S&P/TSX Composite index could see an immediate correction “upwards of 10 per cent,” in a new note to clients.

According to a social media post by the U.S. president, Prime Minister Justin Trudeau spoke with Trump about the situation on Monday, and will do so again later this afternoon.

We do not expect tariffs to last long, and view share price weakness as a buying opportunity.”Scotiabank analyst Jason Bouvier

Scotiabank analysts led by Jason Bouvier say the U.S. tariff on Canadian energy will motivate producers to maximize exports to non-U.S. markets through the recently expanded Trans Mountain pipeline, and re-exports from the U.S. Gulf Coast.

“However, the majority of Canada’s oil exports will still be sold in the U.S. As such, we expect producers to bear part of the tariff through reduced realized prices,” they wrote in a note to clients on Monday.

With 2025 strip pricing for West Texas Intermediate (CL=F) at about US$71.50, and the discount on Western Canadian Select crude at US$15 per barrel, Scotiabank estimates the tariff on Canadian oil will work out to about US$5.60 per barrel.

“The most impacted [exploration, development and production] firms are those with Canadian assets with limited exposure to non-U.S. markets,” they wrote. “However, we do not expect tariffs to last long, and view share price weakness as a buying opportunity.”

Scotiabank says the “most exposed” producers under its coverage are Athabasca Oil Corporation (ATH.TO), Cenovus Energy (CVE.TO)(CVE), and MEG Energy (MEG.TO).

Calgary-based Imperial Oil (IMO.TO)(IMO) kicked off fourth-quarter earnings season for Canada’s oil and gas majors on Friday. Imperial is majority-owned by American oil giant ExxonMobil (XOM).

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