Oil Prices Hit $70: Why Now Might Be a Great Time to Buy Oil and Gas Stocks

Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) has been on a strong rally to start 2019 and the stock could still have a lot more upside left.

| More on:
Value for money

Image source: Getty Images

This week, we’ve seen oil prices continue to rally, reaching highs not seen for months. On Wednesday, the price of Brent oil hit over US$71/barrel while West Texas Intermediate (WTI) was approaching US$65. With turmoil in many parts of the world driving oil prices up, now might be the perfect time to buy undervalued oil and gas stocks that could be poised for big returns.

Supply issues could stimulate more of a rally

OPEC already put production cuts back into place late last year. However, with multiple countries running into issues that have impacted oil production, commodity prices have pushed up even further, and more increases could be on the way. In Libya, violence in the country has put its near-term oil production in jeopardy. Meanwhile, Venezuela has been impacted by U.S. sanctions as well as problems with mass blackouts. Iran is another country where tougher sanctions could also play a role its oil production.

With no shortage of supply issues, in the short term we could see oil prices continue to rise. That’s already starting to pay off for oil and gas stocks. Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) was up around 4% on Wednesday, and year to date the stock has risen more than 30%.

If you’re bullish on these trends continuing, then Cenovus could be a good option to invest in. Despite the increase in price, the oil and gas stock is still trading at a discount. It could be a good opportunity to buy low for a stock that will have much greater upside under more favourable conditions

Although Cenovus is coming off a rough quarter and finish to the year, that could change in 2019 if higher commodity prices help encourage more capital spending, as many producers have cut back in order to tighten up their financials.

With this being an election year, a change in leadership both in Alberta and at the federal level could generate some much-needed optimism for the industry. Politics and government have not been helpful in advancing pipelines and getting the industry back on its feet, and a change in power could do much to alleviate concerns about their being a lack of support from key leadership positions in the country.

Bottom line

Cenovus has been a very volatile stock, but so too have oil prices. If the company has been able to survive the downturn and get to where it is today, then it’s in a good position to succeed going forward.

However, it may take some time before we see investors return, and if these prices prove to be temporary, then corrections in share price are likely to follow. If we can see Brent or WTI prices stay at or above their current levels for at least a couple of months, that might be enough to convince the markets that there might be some real progress being made as opposed to just temporary supply shocks. That could in turn lead to some better stability in Cenovus’ share price as well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »