Today, Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) stock is being absolutely killed. And the sad part is, this is nothing new. 2020 has been nothing short of a disaster for this oil and gas stock. Down almost 50% in 2020, 7.2% in February, and 37% so far in March, CNQ stock is imploding.
This has hit many investors’ portfolios hard. I have long raved about the merits of investing in Canadian Natural Resources stock, because it is a high-quality energy stock and has been a cash flow machine with long-life reserves.
Let’s look more closely at what is driving Canadian Natural Resources stock down. Let’s also look at what, if anything, we should do about it.
Canadian Natural Resources’s stock price fell in February on coronavirus fears
Canadian Natural Resources stock fell in February due to oil and gas woes, which were exacerbated by coronavirus fears. Fears about the spread of the coronavirus impacted all stocks across the board in February. The S&P/TSX Composite Index fell 6.1% and Canadian Natural Resources fell 7.2%.
But what seemed like pretty sharp drops in oil prices and stocks in February now look pretty tame. This is because the severity of the downfall pales in comparison to March action. And while I find this action disturbing, I know it was needed. I also know that there will be tremendous value buys awaiting us one day soon.
Canadian Natural Resources’s stock price falls in March on oil price war
No discussion of oil and gas stocks in March would be complete without addressing the oil price war. Russia shocked the market earlier this month with its refusal to agree to production cuts. Dramatically rising production out of higher-cost U.S. shale assets has continued. And this has worked to partly offset Russia-Saudi efforts to support oil prices by curbing production.
This effectively ended the Russia-Saudi pact to support oil prices through production cuts. In an escalation, the Saudis have moved to increase capacity and is threatening to increase production further.
This all sent the West Texas Intermediate (WTI) oil price down more than 25% so far in March. This follows the 13% fall in WTI prices in February. WTI is everything for oil and gas companies like Canadian Natural Resources. It is the one variable that the company has no control over. And it is the one variable can make or break the company.
Accordingly, Canadian Natural Resources’s stock price has fallen 40% so far in March. Canadian Natural Resources has limited hedging in place. And its cash flow sensitivity is more than 30% for a US$10 per barrel change in WTI. We can see that no matter how finely managed this company is, this is overwhelming.
Foolish bottom line
The dynamics in the energy industry are being shaken up. This has taken Canadian Natural Resources stock down hard. Russia is not willing to cut its oil production while the U.S. is raising its production. The company’s lower-cost oil is just being replaced with higher-cost U.S. shale oil. These types of shake-ups are always painful for everyone involved. If we investors can keep our cool and our wits about us, we can emerge as winners. Let’s stay patient and remain ready to buy when the time is right. And let’s refrain from panic selling.
In closing, I would like to remind Foolish investors of our belief in holding great businesses for the long term. While this belief remains intact, short-term stock price movements often create opportunities to create wealth. Therefore, we need to blend this long-term focus with an eye for short-term stock mispricings. Only then can we use both strategies in harmony. Our quest for financial freedom can be fulfilled.
