From Wall Street to Toronto’s Bay Street, analysts are slashing the outlooks for companies in one corner of the global oil patch that was expected to resist a sharp, double-digit earnings downturn: Canada.

Analysts have aggressively cut their earnings forecasts for the nation’s energy sector as reporting season accelerates in Toronto this week, with oil-sands giant Suncor Energy Inc. due to report fourth-quarter results Tuesday. Earnings in the country’s oil and gas industry are now expected to decline 19 per cent over the course of 2023 — a significant deterioration from previous expectations of a roughly 8 per cent decline, according to data compiled by Bloomberg Intelligence.

The darkening outlook reflects a collapse in natural gas prices that’s fallen particularly hard on Canadian energy companies. Since late November alone, the price has slid by some 65 per cent and is now nearly one-fourth what it was at last year’s peak. 

“Energy sectors around the globe are expected to pull back in 2023 off a difficult 2022 comparison, though Canada had, at the end of November, been expected to suffer the least,” Bloomberg Intelligence senior associate analyst Gillian Wolff and chief equity strategist Gina Martin Adams wrote Tuesday. “Now, Canada is expected to decline more on par with the U.S. and Europe, with energy sectors in emerging markets taking the lead for 2023 earnings expectations.”

The grimmer earnings outlook is a fresh disappointment for the Canadian energy industry, which has struggled to keep pace with outsized stock gains by peers in the U.S. and globally over the last year. The S&P/TSX Energy Index has climbed 12 per cent over the last 12 months, significantly lagging the S&P 500 Energy Index’s 32 per cent rise and the 22 per cent gain for the MSCI World Energy Index.

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Still, there is some reason for optimism in the Canadian market as analysts see some potential for oil producers traded in Toronto to catch up with their U.S. peers. The country’s energy index is expected to return 18 per cent this year, compared with an expected 14 per cent return for the S&P 500 Energy Index, according to analyst price targets.

“Weaker gas and oil prices, as well as slowing global demand, will force down net income for Canada’s energy sector by over 27% from its 3Q peak, but the metric is still expected to be 35 per cent above 4Q21,” Wolff and Adams wrote.