Why Imperial Oil (TSX:IMO) Stock Fell 5.5% in September

Imperial Oil Ltd. (TSX:IMO) stock slipped in September in the face of lower oil prices and rising recession risks.

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Imperial Oil (TSX:IMO) is a Calgary-based company that is engaged in the exploration, production, and sale of crude oil and natural gas in Canada. Today, I want to discuss why this top Canadian energy stock has lost momentum in recent weeks. Moreover, I want to look at the broader oil and gas sector, as we have entered the final quarter of the year. Let’s jump in.

Why the oil and gas sector has lost momentum in the second half of 2022

The energy sector rewarded investors nicely in the first half of 2022. Oil and gas prices built on their gains in 2021, as demand rebounded in the wake of the COVID-19 pandemic. Prices would climb even higher after Russia’s full-scale invasion of Ukraine on February 24, 2022. That move sparked a sharp turn for the European Union, as Germany and other powers reliant on Russian oil and gas took a hardline in response to its war of aggression. Investors anticipated that this would cut into global supply, which sent oil and gas prices to record highs by the early spring.

Policymakers were in a bind in the spring. Inflation in Canada and the rest of the developed world had started to run out of control. The Bank of Canada (BoC) was spurred into action, undertaking the most aggressive interest rate-tightening program in over a decade. Meanwhile, OPEC (the Organization of the Petroleum Exporting Countries) moved to increase production in the face of soaring prices.

West Texas Intermediate crude hit a 52-week high of US$123.70 in 2022. It was trading at US$82.88 at the time of this writing. Moreover, Western Canadian Select hit a 52-week high of $114.52 this year. It has seen its price nearly halve since then, clocking in at $58.24 as of pre-market trading on October 3.

How has Imperial Oil stock responded to this?

Imperial Oil and its peers in the Canadian energy sector surged in response to the conditions in the first half of 2022. Shares of Imperial Oil rose to a 52-week high of $72.96 in early June. However, it would lose roughly $20 in value by the middle of July. Imperial Oil stock has dropped 5.5% month over month as of close on September 30. The stock is still up 26% in the year-to-date period.

Investors can expect to see the company’s next batch of results later this month. In the second quarter (Q2) 2022, the company benefited from high oil and gas prices. It delivered its highest upstream production in over three decades at 413,000 gross oil equivalent barrels per day. Net income shot up to $2.40 billion compared to $366 million in the second quarter of fiscal 2021.

Oil and gas prices have continued to weaken in what was a brutal September for most markets. This drove down the stock price of Imperial Oil and its peers. Should investors expect more of the same in October?

Imperial Oil: Is this stock worth buying on the dip?

Recent reports indicate that OPEC is gearing up for a production cut in the month of October. This should bolster oil prices in the first full month of the fall season. That said, the oil and gas sector is still facing challenges, as the odds of a recession have increased significantly. Worse yet, it looks like the recession may be severe.

Shares of Imperial Oil currently possess a very favourable price-to-earnings ratio of 7.6. Moreover, it offers a quarterly dividend of $0.34 per share. That represents a 2.2% yield.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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