Canadian Natural Resources (TSX:CNQ) recently hit a new 12-month high. Investors who missed the summer rally are wondering if CNQ stock is still cheap and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Oil market outlook
The surge in the price of oil over the past two months caught some traders by surprise after the market’s lacklustre performance through the first half of the year.
A shift in sentiment regarding the outlook for the American economy might be part of the reason oil prices have rebounded. Economists are getting more comfortable calling for a soft landing for the economy as inflation subsides. The U.S. Federal Reserve and other central banks around the globe are fighting inflation through hikes in interest rates. More work has to be done, but markets seem to be sensing the end of rate increases could be near.
Traders might also be betting on hopes for a major stimulus push in China, where the economy has failed to bounce back after the ending of pandemic lockdowns. The country is the planet’s largest oil consumer, and efforts to stimulate the struggling economy could lead to a surge in oil purchases.
On the supply side, Saudi Arabia and its OPEC (Organization of Petroleum Exporting Countries) members are sticking to their supply cuts to bolster the price of oil. At the same time, major oil producers in Western countries are focused more on investing just enough to maintain production and return excess cash to shareholders than on committing to large new projects that could make it difficult to hit net-zero emissions targets.
Looking ahead, the strong rebound in air travel and the ongoing return of commuters to offices should boost fuel consumption through the fall and into next year.
Volatility should be expected, but the bulls appear to be in charge right now.
Natural gas outlook
Canadian Natural Resources is best known for its oil assets, but the company is also a large producer of natural gas.
Utilities around the world are switching to natural gas from coal and oil to produce electricity as part of their energy transition process. It will take a long time for solar and wind projects to get to the point where they can provide the bulk of the power needed around the globe, and alternative power sources are required to meet surges in demand or to step in when renewables falter.
Natural gas remains a cheap and relatively clean source of energy and will continue to be used by millions of homeowners and businesses to heat their buildings in the winter months.
Canadian Natural Resources
CNRL is the largest oil and natural gas producer on the TSX with a current market capitalization near $95 billion. The company has a diversified oil and natural gas portfolio and is the sole owner of most of its assets. This gives management the flexibility to quickly move capital around the asset base to take advantage of shifts in commodity prices.
CNRL has the balance sheet strength to make strategic acquisitions when the market tanks and can then reap the rewards on the rebound.
The stock has had a good run over the past two months, so I wouldn’t back up the truck at this point. However, investors who are bullish on oil might want to take a half position to make sure they don’t miss another surge and look to add to their holdings if the stock pulls back in the coming months. The current dividend yield is 4%, so you get paid well to sit on the shares.
