The Motley Fool

Why Did Suncor’s (TSX:SU) Stock Skyrocket 92%?

Image source: Getty Images

Suncor Energy Inc. (TSX:SU)(NYSE:SU) stock isn’t known for its big swings. In fact, from 2006 to 2020, the stock price returned a grand total of 0%. While there were swings along the way, few were as dramatic as what occurred in recent weeks, when shares zoomed higher by 92%.

What caused such a sudden upturn? Is there still profit to be had for new investors? The answers to these questions have ramifications across the market, whether you own oil stocks or broad-based index funds.

This story is crazy

The world remains captivated by the global COVID-19 crisis, but there’s another dramatic storyline playing out in the energy sector, particularly with oil markets.

At the start of 2020, oil prices averaged US$60 per barrel. Suncor stock was approaching multi-year highs. Months later, prices slid below the US$20 per barrel mark. At one point, oil futures were in the negative, meaning traders had to pay others to unload their contracts. What happened?

The first impact, of course, dealt with the coronavirus pandemic. Planes throughout the world were grounded. Vehicle traffic came to a screeching halt. General demand for energy intensity took a dive. All of this combined resulting in a rapid reduction in oil demand.

Oil supply, meanwhile, can’t be modulated quickly. If demand plummets, supply can stay elevated for weeks, months, or even years after the fact. That’s why sudden shifts in demand often cause outsized gyrations on oil prices, with Suncor stock following suit.

The crazier factor stemmed from a pricing war between Saudi Arabia and Russia, which began in March.

“Saudi Arabia slashed its export oil prices over the weekend in what is likely to be the start of a price war aimed at Russia but with potentially devastating repercussions for Russia’s ally Venezuela, Saudi Arabia’s enemy Iran and even American oil companies,” noted The New York Times on March 3.

“If a true price war ensues, there will be plenty of pain in the oil markets,” added Badr Jafar, president of Crescent Petroleum. “Many will be bracing for the economic and geopolitical shocks of a low-price environment.”

Where will Suncor stock go?

The factors listed above, which influenced both supply and demand, created a perfect storm for oil prices. As an oil producer, Suncor was positioned for maximum pain. In March, shares shed more than 50% of their value.

Recent weeks, however, seem to indicate a turning point. Air traffic is picking up, and more people are heading outside for summer trips. We’re still a far cry away from former highs, but incremental oil demand seems to be ticking up.

The supply situation is similarly encouraging. Oil ministers from OPEC and other producers including Russia agreed to steep production cuts to balance the market. That agreement was extended late last week. Oil prices are now close to US$40 per barrel.

It’s important to note that, even after a rapid 92% rise, Suncor stock remains 40% below its 2020 peak. If conditions continue to normalize, more upside will come.

The current discount represents an ongoing wariness by the market. Suncor isn’t a stock that controls its own destiny.

Its profits fluctuate at the whims of a global virus outbreak and powerful oil-producing countries. Shares may rise in the months to come, but it’s a purely speculative bet.

Want stock picks that control their own destiny?

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.

Fool contributor Ryan Vanzo has no position in any stocks mentioned.

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.