Natural gas stocks are capturing unprecedented interest from investors, primarily driven by a surge in global demand paired with a recent downturn in crude oil prices.

Market Dynamics Favor Natural Gas

West Texas Intermediate oil prices have plummeted to approximately US$65 per barrel, down from US$80 just earlier this year. Meanwhile, energy fund managers are pivoting their portfolios, increasing their stakes in natural gas and pipeline stocks while anticipating a rebound in oil prices and potential takeovers within Canada’s energy sector.

Increasing Demand from Tech Industries

Natural gas is becoming increasingly prominent due to growing consumption from technology companies and AI data centers, as well as its role as a transitional fuel toward renewable energy sources such as solar and wind. “Countries focused on energy security are actively seeking more natural gas,” explains David Szybunka, senior portfolio manager at Canoe Financial LP.

Portfolio Shifts Highlight Growing Confidence

Szybunka’s Canoe Energy Portfolio Class fund has allocated around 45% to natural gas equities, down from nearly 60% last summer, reflecting a strategic bet during a period when North America’s natural gas prices hit a two-decade low.

Diverse Investment Strategies Emerge

Top positions held in U.S. natural gas include EQT Corp., Expand Energy Corp., and Range Resources Corp. On the Canadian front, the fund has stakes in Tourmaline Oil Corp., Peyto Exploration & Development Corp., and Advantage Energy Ltd., showcasing a diversified approach in the natural gas sector.

Challenges Facing Oil Stocks

In contrast, oil stocks are encountering various challenges, particularly due to concerns over slowing global economic growth exacerbated by U.S. tariffs. OPEC+ has also undertaken measures to increase oil production, further complicating the outlook for oil prices.

Readjusting Expectations for Oil Prices

Analysts such as Eric Nuttall from Ninepoint Partners LP predict that oil prices may stabilize between US$50 and US$60 per barrel in the near future as demand growth slows. His fund has maintained a significant 75% weighting in natural gas stocks, with Canadian holdings including Arc Resources Ltd. and Peyto Exploration, reflecting the overall shift in investor confidence.

Future Outlook for the Energy Sector

As U.S. liquefied natural gas exports continue to rise, buoyed by burgeoning global demand, the attractiveness of natural gas stocks is poised to increase. Upcoming projects, such as those from LNG Canada, are expected to alleviate price differentials, providing additional momentum for investment in this sector.

Conclusion

The energy landscape is undergoing a meaningful transformation, with a decisive pivot toward natural gas stocks amid a volatile oil market. As investors adapt their strategies, the focus on natural gas and its pivotal role as a transitional energy source is likely to become even more pronounced in the coming years.