We recently had Bart Melek on the show. And as part of his commodities outlook, he said in 2018 he's bullish on oil. But for investors, the big question is, what could that mean for oil and gas stocks? Joining me to explain is James Hunter from TD Asset Management. Thanks for being here. Thank you, Sara. It's great to be here. The performance of oil and gas stocks is largely tied to the underlying commodities. So when you look at the three main drivers-- demand, supply, and inventories-- what's your outlook for the sector? Well, starting with global supply, it's up about a million barrels per day in 2017. While that sounds like a lot, it's actually less than what was anticipated coming into the year. And that's because US production has fallen short of expectations, which were inflated by management teams claiming that the shale revolution had generated a virtually unlimited supply of high quality wells. I think it's becoming clear that those comments were an exaggeration. And overall, we can say that global supply growth has been positive but subdued. Turning to demand, it's up about a million and a half barrels per day in 2017. So the environment continues to be quite constructive. And that's been driven by demand for gasoline in emerging markets as well as fuels for tankers, airlines, and also petrochemicals. And so I think it's an interesting contrast to what we've been hearing with respect to electric vehicles and how they have the potential to displace the traditional fleet of combustion engines. So countries in Europe-- like France and the UK-- they've indicated that they're going to ban those cars by 2040. And so while that trend isn't going to go away-- and it is something we need to continue to keep an eye on-- I think the bottom line is that demand is solid. And then lastly, we do look at inventories. Those numbers have been getting worse until about the spring of this year, when the OPEC production cuts started to feed through the system. So now global inventories are falling towards their longer term averages. And that's fundamentally positive for pricing. So putting that together, you've got supply that's growing but more slowly than demand. You've got inventories that are rebalancing. So I think it's fair to say that the macro backdrop for crude oil is pretty decent. Despite being pretty positive in terms of your outlook, you said there are two things you're worried about right now. Can you explain what you mean by that? Yeah. So there are two potential issues on the horizon. And the first is that the market is really being propped up by OPEC. That's an inherently unpredictable consortium, and we really can't place too much faith in it to support prices over the longer term. The second piece is technology, which is having a big impact on the sector. And what we've seen is that it's lowering the cost curve for producers. And so they're able to generate more production with less capital investment. So our view is actually that there's some but not a lot of upside to crude oil prices. And we should continue to expect volatility. One of the things you said when you and I were chatting-- and I want to cover this off before we get into possible names or investment ideas-- is that there is some broad industry trends that make companies more attractive. And you gave me cost structure and consolidation. What does that mean? Right. So if we start with operating costs, if you look at Canada and the US's two largest producers, they've reduced operating costs by an average of 25% over the last three years. But the interesting thing to me is that it's not just about outright cost cutting but process improvements and doing things smarter. So for example, drilling multiple wells from the same location to do things more quickly, and then also employing autonomously operated equipment in the field. And this is allowing producers to make money, even though commodity prices are lower. So Exxon Mobile, for example, they've increased their dividend by over 10% in the last couple of years. So then the second trend, this time specific to Canada, is consolidation in the oil sands. And what we've observed is a number of American and international companies exiting the space. There's been a few reasons for that-- in some cases, better investment opportunities in other parts of their investment portfolio. Or it might just be that the assets that they have lack strategic importance to them. But the buyers have been Canadian. And so a number of Canada's largest domestic producers have completed acquisitions in 2017. So our view is that the dynamics in the oil sands industry are actually improving because as fewer players compete in the market, those that are remaining will become more efficient and more profitable. Now, you gave us some risk to consider earlier. But if I'm an investor and I'm thinking about playing the oil and gas space, what are some of the names that you like right now? Yeah, so putting it all together-- I think the outlook for 2018 is better than it has been in recent years. While we are cautious in our view that commodity prices don't have a lot of upside, we recognize that they've rebounded enough that producers can make money. And we also think that valuations in this space are reasonable. I would say that at TD Asset Management, we have a focus on companies that have sustainable competitive advantages. And so the list of companies that extract natural resources from the ground but also match our quality threshold-- it tends not to be too long. But I would highlight companies like Suncor and Canadian Natural Resources. Both those companies have diversified businesses that stabilized their cash flow. They've got good balance sheets, solid management team, and economies of scale that lower their cost. They also both pay a 2% to 3% dividend yield, which should continue to grow. So I think both of those companies are in a position to perform well over the next couple of years. James, thanks very much for being here. Thanks, Sara. It's my pleasure.