Suncor Energy (TSX:SU)(NYSE:SU) stock has taken a serious beating in 2020. Down 62% year to date, it has fallen further than anybody could have anticipated.
The past few years have been bad for energy stocks in general. Starting with the 2014/2015 oil price collapse, tar sands stocks have been in secular decline. But few anticipated the thrashing they were to take in 2020. Thanks to the COVID-19 pandemic, oil prices got crushed in March and April. This led to a collapse in oil and gas stocks, along with the commodity itself. Suncor was one of the worst affected of Canada’s large-cap energy producers.
However, there have been glimmers of hope. On Thursday and Friday, Suncor stock rose nearly 9%, an impressive jump in such a short timeframe. That may indicate renewed investor confidence in the stock. Further, some big players like Warren Buffett persist in buying the stock, despite its months-long decline. So, there’s no shortage of positive sentiment toward Suncor. The question is, how low can it go before it finally starts climbing back again?
SU stock price
On Wednesday of last week, SU reached its lowest price all year: $15.11. That’s slightly lower than its lowest closing price in March: $15.45. It’s odd that SU stock would slide even lower in October than it had in March. Oil prices have been on the rebound since April, but Suncor stock set a new low just this past week. Additionally, Suncor’s loss shrank in Q2 from $3.5 billion to $614 million. That momentum could indicate that positive earnings are on the way in Q3.
But operating earnings and funds from operations actually decreased from Q1 to Q2. April, the first month of the second quarter, saw the lowest oil prices all year, so that’s not surprising. Overall, Suncor’s earnings trend in 2020 so far has been ambiguous. We’ll have to wait and see how Q3 turns out before we can say for sure where this company is headed. By the way, those earnings come out after markets close today, so keep your eyes peeled.
Oil price: A major factor
One thing about SU’s stock price trajectory is clear: it’s going to be correlated with the price of oil.
Suncor is an integrated energy company that’s mainly involved in extracting oil, refining it, and selling it as gasoline. According to the St. Louis Fed, a $10 increase in the price of oil is correlated with a $0.25 increase in the price of gasoline. It follows from this that Suncor’s earnings are directly related to the price of oil.
What all this means is that the ongoing COVID-19 situation is still a real risk factor for Suncor. Presently, COVID-19 cases are rising in North America and Europe. That includes Canada. If we re-enter sweeping lockdowns, then demand for gasoline will likely fall. In the initial spring lockdowns, gasoline prices fell on lower demand. Consumers had less of a need to drive thanks to then-widespread stay-at-home orders. If a situation like that re-emerges, Suncor’s stock could decline much further than it already has.
