Canadian oil and gas stocks have been roiled by recession fears as central banks raise interest rates in a bid to put a leash on run-away inflation.
Kevin Krausert is CEO and co-founder of Avatar Innovations, a Calgary-based venture capital firm and startup accelerator that pairs entrepreneurs with the biggest companies in Canada’s energy patch. He says low unemployment figures suggest the economy will contract less than what’s priced into Canadian oil and gas stocks.
“It’s not the fundamentals of the oil market, it’s the fundamentals of the economy that are driving the speculative drop in energy equities,” he told Yahoo Finance Canada’s Editor’s Edition.
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Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
JEFF LAGERQUIST: Can you walk me through some of the fundamental indicators investors can look at if they're starting to get nervous about oil and gas stocks?
KEVIN KRAUSERT: You know, by and large, it's excess capacity and it's production. You know, what I would be looking at right now is really, really the economy. And GDP is sort of going to be the key measure to be watching for a recession. Do we go into a light recession of one or two quarters, cool off the economy, prices are going to sort of stay where they are. Indications of a sort of perhaps deeper recession is obviously going to be labor numbers. That's the sort of barometer that most people use. And right now, we're still at record low unemployment, which is the really interesting thing about this recession, is how do we have-- how are we walking into a recession with record low unemployment?
So the question is a short-lived one or two-quarter recession, I think, arguably could be made that would be a benefit to the broader economy. A deeper recession, you've got to start looking at unemployment numbers, housing numbers, these types of things. Because it's not the fundamentals of the oil market, it's the fundamentals of the economy that are driving the speculative drop in energy equities.