Cheap Oil Crimps Canada ETFs

Canadian energy stocks and country-related exchange traded funds are sliding as the stubbornly low oil prices put into question the economics behind pushing forward the delayed Keystone XL pipeline.

The Guggenheim Canadian Energy Income Fund (NYSEArca: ENY) dipped 2.8% Thursday. ENY has declined 16.6% over the past three months.

Broad Canada stock ETFs also weakened Thursday, with the iShares MSCI Canada ETF (NYSEArca: EWC) down 0.8% and First Trust Canada AlphaDEX Fund (NYSEArca: FCAN) 1.7% lower. Over the past three months, EWC has declined 5.2% and FCAN fell 7.9%. EWC includes a 23.3% tilt toward energy stocks and FCAN’s portfolio holds 37.5% in energy.

Additionally, the IndexIQ Canada Small Cap ETF (NYSEArca: CNDA) fell 1.0% Thursday while iShares MSCI Canada Small Cap Index Fund (BATS: EWCS) declined 1.6%. CNDA has a 36.3% position in the energy sector and EWCS holds 25.4% in energy stocks.

With West Texas Intermediate crude oil futures trading around $74.4 per barrel, new wells in Canada may no longer generate a profit. The oil extracted from oil sands in Alberta, which would be transferred through a proposed Keystone pipeline to Nebraska and then to refineries on the Gulf Coast, would cost between $85 and $110 per barrel to produce, reports Tim Mullaney for CNBC.

“I would think that in order for new drilling projects to be capitalized and economical, the price of oil would need to be around $85 to $90,” Moody’s Analytics energy economist Chris Lafakis said in the article.

According to Rystad Energy, oil sands are among the most expensive sources for extracting oil, with minimum costs of an average $75 to $80 per barrel to produce.

“Anything not under construction [is]at risk of being delayed or canceled altogether,” Dinara Millington, vice president for research at Calgary-based CERI, said in the article.