Suncor Energy (TSX: SU) stock surged to a high of $47.97 in early March before the U.S. banking crisis pulled the entire market down. While TSX bank stocks fell 7–12%, oil stocks fell even more as they are trading at an inflated value. Suncor stock nosedived 17.6% in mid-March as the WTI crude price fell to as low as US$66.93 per barrel for the first time since the pandemic.
To bring oil to its high-profit glory, the Organization of the Petroleum Exporting Countries (OPEC) reduced oil output, sending the WTI crude price back to US$80/barrel. Even though the oil price returned to the early March level, Suncor stock only surged 12% to $44.30. How high could the stock go in 2023?
The correlation between oil stocks and U.S. banks
OPEC is cutting output to enjoy the windfall margins members get from exporting oil at US$80. But these high oil prices are putting pressure on high energy-consuming countries as inflation eats up the purchasing power of consumers.
The central banks are increasing interest rates to control inflation by reducing the money supply and demand. This rising interest rate has put banks on liquidity and credit risk alert. Banks are seeing an increase in loans and withdrawals. They are tightening their controls as they fear many people might default.
In all this, the United States plays a role as most oil exports happen in US dollars. High oil prices have been strengthening the dollar. Hence, the collapse of three U.S. banks impacted oil stocks more than bank stocks. The collapse of U.S. banks reduced oil demand.
Oil stocks price momentum in 2023
Last year, when OPEC cut oil output, Suncor Energy’s stock price surged to as high as $49. That is the peak I do not expect Suncor stock to reach in 2023. A recession was not a threat in 2022, but it is imminent in 2023. Last year, consumers were spending even when interest rates surged as they had pandemic savings. The pent-up demand for travel was immune to inflation.
But this year, the scenario is different. A 4.75% interest rate and over 6% inflation have started to seep into consumer demand. Before the 2008 market crash, OPEC cut oil output, and central banks hiked interest rates to 4.5%, inverting the yield curve. All this dried out liquidity, popping the financial bubble. History is repeating itself. So, I am bearish on Suncor Energy stock.
How high could Suncor Energy stock go in 2023?
I believe that Suncor Energy stock reached its peak of $47.97 on March 3. In the best-case scenario, the stock might surge to as high as $46 before the recession bubble pops. The oil price could surge if the United States refills its Strategic Petroleum Reserve (SPR), which it used to boost the oil supply and ease oil prices in 2022. However, America has put its refill plans on hold and is operating the SPR at its lowest level since 1984.
The global energy industry is transitioning to renewable energy, and many oil companies believe this is the last of the oil peak. The oil industry will remain volatile throughout 2023 as OPEC tries to squeeze out every bit of windfall profit before the demand falls.
Suncor is currently in the upcycle before a recession. Even in 2008, Suncor stock peaked at $67.80 in May 2008 before the September 2008 crash pulled the stock down 68% from its peak. The United States is probably waiting for a recession to begin refilling the SPR. If that is the scenario, even the refill won’t push oil stocks to the current level.
What to do with Suncor stock?
I keep reiterating, if you own Suncor stock, it is time to sell. If you sell it at or above $44, that is a good price for this cyclical stock. Because once the recession pulls down oil prices, Suncor stock may not see the $44 price again.
If you are waiting for the stock to reach the $50 price, you might lose the current profits. Sell the stocks and hold the cash to buy some value stocks during the recession. BCE is a good stock to invest money in and earn dividends during a recession.
