The NDP’s victory in Alberta’s provincial election caused the TSX to drop on Wednesday as energy stocks took a hit. Specifically, the S&P/TSX Composite index dropped 0.99 percent, or 150.05 points, to close at 15,023.89 points. The dip marked a one-month low and put seven out of 10 of the main sectors on the index in the red.
The New Democratic Party’s (NDP) victory in Alberta’s provincial election caused the TSX to drop on Wednesday as energy stocks took a hit.
Specifically, the S&P/TSX Composite index (INDEXTSI:OSPTX) dropped 0.99 percent, or 150.05 points, to close at 15,023.89 points. The dip marked a one-month low and put seven out of 10 of the main sectors on the index in the red.
Energy stocks make up about 22 percent of the index, and while Wednesday’s oil price boost would usually have driven them up, the political news pushed them down by 2.9 percent.
While Thursday brought a small recovery, with the index closing up 0.43 percent, at 15,055.82 points, the political climate change in the oil-rich province could cause future rifts in the energy sector. Alberta NDP leader Rachel Notley’s win over Jim Prentice ended the Progressive Conservative party’s 44-year hold on power in the province, and the oil sands policy changes Notley may put in place could have ill effects on energy companies.
Notley has vowed to take a closer look at royalty rates and develop more strict environmental policies in a bid to reduce Alberta’s carbon footprint. Those promises have added to the fears of companies working in the province, as the slumping oil price has already made it tough to stay afloat. Such new policies could drive away investment capital, adding to already deep spending cuts and thousands of job layoffs.
Looking at what an increase in royalty rates could mean for the energy space, Elvis Picardo, vice president and strategist at Global Securities, told Mining Weekly, ”[t]he implications of a rise in royalty rates would be quite negative for the Canadian energy sector, coming as it would at a time of unprecedented turmoil caused by the plunge in crude oil prices.”
Furthermore, Doug Suttles, CEO of Encana (TSX:ECA,NYSE:ECA), has warned that abrupt actions could hurt Alberta’s struggling energy market. ”People need to use great care right now because this is a time when activity levels are way down and jobs are being lost and you don’t want to do anything that discourages future investment,” he said in a speech, as reported in The Globe and Mail. “You can’t live in Alberta right now and not feel the impact of oil and gas prices.”
That said, those hoping the victory will put an end to all proposed pipelines may still be disappointed. Although Notley has said she will push for neither Enbridge’s (TSX:ENB,NYSE:EEP) Northern Gateway project nor TransCanada’s (TSX:TRP,NYSE:TRP) Keystone XL pipeline, she has expressed tentative support for the Energy East pipeline and Kinder Morgan’s (NYSE:KMI) plan to expand its TransMountain project.
Unsurprisingly, Enbridge’s share price went down a significant 2.7 percent to hit C$60.05 following the election. Meanwhile, Suncor Energy (TSX:SU,NYSE:SU) dropped 3.4 percent to C$37.03.
Still, uncertainties definitely remain in terms of what the political shift will bring for Alberta. As Colin Cieszynski, chief market strategist at CMC Markets Canada, told The Globe and Mail, ”[a]ll kinds of things could potentially change. It’s introduced an element of uncertainty after 44 years of Conservative rule where people had a pretty good idea of where they stood.”
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.