Aggressive actions by many OECD governments to cut greenhouse gas (GHG) emissions has resulted in the first decline in crude oil consumption across those nations in more than 20 years, finds CIBC World Markets latest Canadian Portfolio Strategy Outlook report.

“Governments are waging a war on carbon,” says Jeff Rubin, chief strategist and chief economist at CIBC World Markets. “The decline in crude consumption in the OECD last year seems further evidence of policy-mandated demand-destruction aimed at reducing oil consumption in an effort to abate GHG emissions.”

Rubin cites the mandating of greater ethanol content in gasoline and the raising of minimum fuel mileage standards to address public concerns about global warming as key policy initiatives that have resulted in a reduction in consumption. He expects the next step in Canada and the United States will be regulations of GHG emissions along the lines of what was recently introduced in California. This would see provinces and other states implement a carbon dioxide emissions cap while at the same time establishing an emissions trading system that allows larger polluters to buy emissions credits from other firms whose emissions are less than what is allowed under the cap.

The report states that the cap and trade system would most adversely impact utilities and oil sand producers. As a result of this and faltering demand growth for crude oil in OECD countries, CIBC World Markets is pruning back its overweight in energy stocks from 4.5 percentage points to 3 percentage points. However, the firm still expects that oil sands opportunities will continue to be aggressively pursued by global energy giants.

“We are realigning our equity portfolio toward a more balanced sectoral weighting in keeping with the recent breadth of market gains,” notes Rubin. “Investor disappointment at fading near-term prospects for rate cuts has been more than offset by growing confidence in the North American economy.”

That growing confidence drove the TSX to a new record level in January en route to CIBC World Markets projected year-end mark of 14,250.

CIBC World Markets says it remains fundamentally bullish on stocks, maintaining a 10-percentage-point overweight at the expense of both cash and bonds. Its weighting cut in energy, and a half-point cut in financials on the basis of a now-delayed timetable for rate cuts, opened up room to reduce underweights in consumer staples, consumer discretionaries and infotech stocks.

CIBC World Markets also remains overweight in gold stocks and the rest of the materials group. It sees a still-strong global economy supporting base metal prices and central bank diversification out of greenbacks creating upside for a US$700 per ounce gold price by year-end.

Within the rest of the materials group, CIBC World Markets also favours the agricultural fertilizer group, where valuations have soared as increased government support for ethanol production has bolstered corn acreage and forecasts of future fertilizer demand.