Tension continues to rise, as the Organization for Petroleum Exporting Countries (OPEC) continues to fend off battles between oil-producing countries. As energy stocks continue to rise, many analysts have started fearing that there could be another huge shift in oil prices, but in either direction. So, is it too early to celebrate the comeback of the energy sector?
What’s happening?
Saudi Arabia and the United Arab Emirates (UAE) continued squaring off this week before OPEC had to end any hopes at a production deal. The tension caused West Texas Intermediate (WTI) crude oil to soar another 2%, which caused analysts to worry about inflation. The UAE believes it should be able to raise its 3.2 million barrels per day (bpd) to 3.8 million until 2022, but Saudi Arabia and Russia disagree, worrying other OPEC members will make the same requests. As of writing, the OPEC Plus group produces about 37 million bpd compared to 43 million in April last year when the pandemic started.
If the UAE doesn’t reach a deal, it could mean that crude oil prices could soar even higher, and the OPEC agreements could break down. While there could be higher prices among energy stocks in the short term, such a move could mean there’s a free-for-all among oil-producing countries. This, of course, would lead to a price crash. This happened last year when Saudi Arabia and Russia created an oil price war, followed by the UAE threatening to leave OPEC.
What it means for Canadian energy stocks
What does this mean for Canadian energy stocks? The breaking down of an agreement could actually see energy stocks soar higher in the short term. While it would be up to the government to agree to production, Canada may fear that it needs to produce and sell as much as possible before the inevitable crash that follows from increasing production across the world.
So, it’s a similar scenario for Canadian energy stocks as it is for the rest of the world. Back in November, Canada hit a record, producing 3.16 million bpd in oil. However, this was followed the next month by curtailments by the Alberta government, which was worried about stress on pipelines. But now that curtailments are over, pipelines are at full capacity, and oil production could continue to soar higher — especially if there’s a breakdown in OPEC. It’s expected that Canada could reach 3.3 million bpd by mid-2021.
What should Motley Fool investors do?
Here at the Motley Fool, we don’t usually worry about short-term events. But no one can ignore the immense stress that this OPEC breakdown could have on the markets. Right now, many have been buying up Canadian energy stocks like Suncor Energy (TSX:SU)(NYSE:SU), as they celebrate a rebound in the oil and gas sector. But it may be a bit premature to celebrate.
For those interested in buying up a stock like Suncor stock, definitely think long term — but, in this case, really long term. As Warren Buffett says, don’t buy a stock for 10 minutes if you’re not willing to hold it for 10 years. In this case, it could be 10 years before you see some stabilizing with Suncor stock.
If you look at the last decade, it’s been a volatile situation for the company, to say the least. Shares are up only 1.5% in the last decade for Suncor stock. And that comes with incredible ups and down with energy crises, pandemics, and production cuts. It’s why fundamentals are up in the air right now, though analysts believe, at least in the short term, there is likely to see some share growth for Suncor stock.
Bottom line
I’m not saying you shouldn’t buy Suncor stock. I’m not saying either that you shouldn’t look at energy stocks in general. But I am saying that right now is yet another volatile time in the energy market. Motley Fool investors would be wise to pay attention, and wait for the market to stabilize before sinking their savings into oil and gas ahead of a potential crash.
