The Motley Fool

Oil Price War Ends: Suncor (TSX:SU) Could See Explosive Growth in 2020

Image source: Getty Images

The diplomatic breakthrough between Saudi Arabia and Russia to end the oil price is a win for the global economy. By agreeing to cut global petroleum production by almost 10%, pressure on oil companies should ease. Despite the deal, however, skeptics are claiming that the cut will not dent the massive oil glut.

While the initial proposal was to cut production by 10 million barrels, the Big Oil Deal came down to 9.7 million barrels a day. According to Saudi Energy Minister Prince Abdulaziz bin Salman, Saudi Arabia is more than happy with the accord.

Canada, along with Brazil and the U.S., will contribute 3.7 million barrels a day. Other G20 countries are expected to make voluntary cuts.

What’s next?

COVID-19 is paralyzing air and ground travel and bringing down demand for gasoline. Diesel and jet-fuel, in particular, are collapsing. The intervention by the United States made it possible for the warring parties to agree to a deal. But there will be a few more weeks of oversupply.

The deal takes effect on May 1, 2020, and the production restraints could last for about two years. The production cut will be down to 7.6 million barrels per day after June until year-end. Through 2021 until April 2022, the cut will be reduced to 5.6 million barrels per day.

Highest-rated energy firm

The decline in oil prices is hurting Canada’s leading integrated energy producer badly. Before the historic deal, Suncor Energy (TSX:SU)(NYSE:SU) announced a 26% cut in spending. The demand shock forced the company to reduce spending by $1.5 billion, where the adjusted range is now between $3.9 and $4.5 billion.

According to Suncor President and CEO Mark Little, the simultaneous supply and demand shocks are having a significant impact on the global oil industry. He said the adjustments will cover both spending and operational plans.

Suncor is anticipating the weak business environment to extend longer. Thus, the twin moves will ensure that the company could endure a protracted market disruption. Little assures investors that the business model and financial strategy of Suncor can withstand volatile environments.

The shares of this $32.63 billion company are on a rally since falling to a low of $15.41 last March 23, 2020. As of this writing, Suncor has climbed to $21.37, which represents a gain of 38.7%. Year to date, this energy stock is still losing by 49.1%, although the dividend yield has risen to 8.22%.

Suncor remains a top-notch investment option during this market crash. Moody’s Investors Service and S&P Global Ratings are maintaining their investment-grade rating. As such, the rating makes Suncor one of the highest rated firms in an industry beset by high risks.

Solid endorsement

Moody’s latest statement issued states, “Suncor’s liquidity is good.” Even if oil prices stay low, the company is taking needed action to maintain its capital structure and cash flow.

There might be new announcements or developments come May 6, 2020, when Suncor holds its annual general meeting. For now, investors should feel safe having this energy stock in their portfolios.

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.