2021 has been a banner year for energy stocks. With oil prices jumping on higher demand, major energy companies are making far more money this year than they did in 2020. Last year was a trying time for energy firms. The pandemic led to oil and gas prices collapsing — WTI futures even went negative at one point — and most Canadian energy companies ran huge losses for the year.
Today, things are looking much rosier. The pandemic is beginning to fade, and people are getting back to driving, travelling, and even flying. Oil prices have been going much higher than they were last year, with WTI futures now at $75.
In this environment, two TSX energy companies stand out: Suncor Energy (TSX:SU)(NYSE:SU) and Enbridge (TSX:ENB)(NYSE:ENB). These companies are very different, yet there are enough similarities to merit a comparison. As you’ll see, one of these companies has much more to gain from high oil prices than the other. Both are solid stocks in 2021, but if you must pick just one of them, the following are some factors to consider.
The case for Suncor
The case for Suncor depends heavily on bullishness in oil. If oil just keeps on climbing, then Suncor will make far more money off it than Enbridge will. Suncor is an integrated energy firm that extracts, refines, and sells oil. When oil prices go up, Suncor’s revenue and margins do, too. That’s less the case for Enbridge, which is fundamentally a transportation company. It charges fees to transport oil for clients — a business that’s more stable but has less potential growth than selling oil directly. It does have a natural gas utilities business where it sells LNG directly to customers. But it won’t make as much money off high crude prices as Suncor will. In the first quarter, we saw Suncor’s earnings spike compared to last year thanks to higher oil. The results for Enbridge in the same period were much tamer.
The case for Enbridge
The case for Enbridge is pretty much the inverse of the case for Suncor: it can still do well, even if the oil rally goes up in flames.
In 2020, Suncor Energy ran four consecutive net losses in a row due to low oil prices. Enbridge, however, cranked out $3 billion in profit. As a pipeline company, Enbridge doesn’t need high oil prices to make money. As long as there is strong demand for its services, the revenue will keep coming in. Of course, a truly steep collapse in demand for energy could hurt Enbridge’s revenue. But in a world where many buyers willingly pay for the far more expensive crude by rail, demand for pipeline services looks like it will be rock solid for the foreseeable future.
2021 has been a great year for energy stocks — including Suncor and Enbridge. Both stocks are up for the year, with Suncor up a little more. If the bullishness in oil continues, then Suncor will do better. Otherwise, Enbridge gets the crown. It’s a classic case where one stock has more upside, but the other is safer.