There might be some hope for oil and gas stocks after all.
According to a recent report out of BNN Bloomberg, the expectation is that on June 18, it’s likely that we’ll see the federal government move forward with the expansion of the Trans Mountain pipeline. There’s a lot riding on the decision, and it could revive a struggling industry in Canada that hasn’t seen much bullishness or excitement despite a rising price of oil. There have been many obstacles in the industry for growth, which has kept many investors away despite the low prices that oil and gas stocks.
A stock like Enbridge Inc (TSX:ENB)(NYSE:ENB) is a good example of that. Although the stock has seen some momentum lately, it’s still run into resistance, as investors have not been willing to pay much of a premium given how risky the industry still is today. Approval of the Trans Mountain expansion could change that, giving investors hope that growth in the industry in Canada might not be dead after all.
There’s still a risk that the decision could again be delayed, but according to the report, it appears to be an unlikely scenario.
What does this mean for investors?
The decision to move forward with the pipeline could inject the industry with a lot more optimism and hope, and in turn, give stock prices a boost. If there’s more confidence in the possibility of oil and gas projects getting approved in Canada, that will help encourage more investment in the industry. which in turn could help stimulate some much-needed growth.
Companies have scaled back spending under what they’ve seen to be some challenging industry conditions, but getting the Trans Mountain going could help change that trend. However, it’s hard not to be at least a little skeptical if the decision does come down to approve the pipeline in June, just months away from a big federal election. There hasn’t been much support for the industry under the current government, and it might be a bit too convenient should the industry get some good news just before it’s time to vote.
We saw Rachel Notley try to win voters late in the game by using the Trans Mountain expansion as well. That didn’t work, and I’m not convinced that approval of the pipeline will help the Prime Minister get oil and gas voters behind him either.
Oil and gas investors have been very cautious in recent years, and I’d expect much of the same here. Until investors and companies see there is some real, sustainable progress in the industry, that’s when we’ll see money flow back into oil and gas. While approval of the Trans Mountain would certainly be a good step for the industry, I still think it would take a lot more for investors to be convinced that it’s a good time to buy oil and gas again. At the very least, I’d suggest waiting until after the election results.
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Fool contributor David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.