Oil Is Rising Fast: How High Can Energy Prices Go?

Here’s why I think Suncor Energy (TSX:SU)(NYSE:SU) could have much more room to run over the medium to long term.

| More on:
Group of industrial workers in a refinery - oil processing equipment and machinery

Image source: Getty Images

Suncor Energy (TSX:SU)(NYSE:SU) and the big oil industry have been under pressure of late.

Scratch that; investors in such stocks have been under immense pressure this past year.

With oil prices plunging into negative territory for the first time ever, investors got a glimpse of what a horror show energy stocks can be at points in the market. Indeed, Suncor slashed its dividend conservatively, despite having a balance sheet that was better than its peers. There was seemingly no hope for these stocks a year ago.

However, today, investors are more than willing to dive into these plays. As oil has surged toward the US$70 WTI level, producers like Suncor are suddenly cash flow growth machines.

Can these oil prices be sustained?

Here’s my take on why Suncor remains a solid pick today.

Oil price on a roll

As I’d predicted last year, the bull market in commodities prices has taken hold. For investors in energy stocks like Suncor, this is a beautiful thing.

In fact, oil prices have climbed to a one-year high last week. This came after a 20-minute OPEC+ (Organization of the Petroleum Exporting Countries and its ally countries) meeting, after which it announced that these countries plan to restore supply through July. Additionally, OPEC+ members expect a market recovery is on the way, with demand normalizing in the U.S. and China. Moreover, vaccine drives picking up the pace will further stabilize the market. Increasing demand and a reduction of the supply glut in the market are key factors that have driven this increase.

Accordingly, Brent has risen above US$72 per barrel, with WTI breaking the US$70 barrel for the first time in a long time. These oil prices are a godsend to companies like Suncor that rely on higher oil prices for profitability.

According to analysts, oil barrel prices can go be sustained well beyond $70 next year. If this is the case, Suncor and its peers stand to benefit in a big way.

Bottom line

Suncor has robust fundamentals right now, despite lowering production during the pandemic. The company has surpassed analyst expectations in recent quarters and is proving to be a very profitable play at these levels.

If analysts and economists are correct, and oil prices can be sustained at these levels for some time, investors stand to do very well with this stock. I expect the bull market in commodities to rage on for some time and agree with OPEC+ on this one.

Accordingly, investors may be well served by picking up some Suncor at these prices 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 Chris MacDonald has no position in any stocks mentioned in this article.

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 »