The oil sale is live. The West Texas Intermediate (WTI) crude price is hovering around US$72 for the first time since December 2021 after trading between US$80 and US$100 throughput 2022. The oil price dip was expected but is unlikely to last, as the geopolitical scenario favours an oil price of above US$78/barrel. There are many other macro factors at play that are either pulling down or pushing up the oil prices. All this has made this cyclical commodity the centre of geopolitical tensions. You can make the most of this volatility by buying Canada’s top oil stocks right now before the oil price rises in June 2023.
Let’s understand the global energy scenario and the role of Canadian oil stocks in it.
The current scenario in the energy sector
Oil is the most widely used natural resource, but a few countries have rich oil reserves. The Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, pump 40% of the world’s crude oil and exports them to the largest oil consumers, including China, India, and Europe. The United States imports most of its oil from Canada. Western countries banned Russian oil after the Russia-Ukraine war, boosting oil prices to as high as US$125 in June 2022 and above US$80 throughout 2022. OPEC+ gained the most, as they could sell their produce at a higher rate.
America released oil from its Strategic Petroleum Reserves (SPR) to ease oil prices, which reduced the SPR to an alarming level. On one side, the U.S. Fed increased interest rates to curb demand and control inflation. On the other side, OPEC cut production to adjust oil production with demand. In April, oil prices increased to US$80, as OPEC announced plans to cut oil production in May. But oil prices eased to around US$70 in May over concerns around the U.S. debt ceiling. If the U.S. defaults, oil prices could take a hit as most companies buy and sell oil in U.S. dollars. But America has averted the crisis for now by suspending the debt ceiling.
An energy sector rebound is on the cards
OPEC, in its June meeting, decided to cut oil production further, whereas America decided to refill its SPR. These decisions could boost oil prices again. Despite these production cuts, oil prices could fall if China (the world’s largest oil consumer) goes into another Covid lockdown.
In this tug and war of demand and supply, Canadian energy stocks will benefit. Canada exports more than 99% of its oil to America, where demand will likely pick up after President Joe Biden decided to refill the SPR later this year.
The Energy Information Administration (EIA), in its short-term energy outlook, said, “We expect the seasonal rise in oil consumption and a drop in OPEC crude oil production to put some upward pressure on crude oil prices in the coming months.”
Is Suncor stock a buy?
Suncor Energy is Canada’s largest integrated oil company that performs everything from exploration to refining, distribution, and retailing of oil. It produces oil at an average cost of $30-$43/barrel. If the oil price rises, its production segment benefits as it can sell crude oil at a higher price. And if the oil price falls, its retail segment benefits, as it sells more refined petroleum products.
As long as the oil price remains above $50, Suncor stock might move alongside the oil price. But its dividends will likely remain sustainable. Unlike other oil stocks, Suncor has a track record of growing dividends, as it benefits from both price and volume. Suncor slashed dividends in the pandemic crisis as oil prices fell below US$35/barrel.
Suncor stock is at a sweet spot, down 11% in two months. The United States’s suspension of its debt ceiling has put the market in a bull run and sent oil price soaring. Suncor stock could cross $45 until further developments in oil demand and supply. You can buy the stock now and lock in a 5.2% dividend yield if you plan to hold for the long term. Or you can buy now and sell it after the stock price surges 15-20% to $45-$47 in the short term.