Just when you thought oil prices would ease, Middle East geopolitical tensions have escalated, driving up oil prices. WTI crude that traded below US$77 a barrel at the start of the year went up to US$83.85 a barrel in April. Behind this surge are developments in the Middle East war situation. On April 1, Israel bombed the Iranian embassy. In retaliation, Iran attacked Israel on April 13. This spillover of the Israel-Hamas war sent oil prices on an upward trajectory once again. Suncor Energy (TSX: SU) stock has surged 25% since February 14, surpassing its June 2022 high, when oil prices surged due to the Russia-Ukraine war.
How high can Suncor Energy stock go?
These escalations in oil prices increased the U.S. March 2024 inflation to 3.5%, dimming hopes of an interest rate cut any time soon. The World Bank, in its recent press release, warned against an escalation in oil prices. Below are the World Bank’s expectations for the average Brent crude price in 2024:
- US$84 a barrel, assuming no conflict-related supply disruptions.
- US$92 a barrel, assuming moderate conflict-related supply disruptions.
- More than US$100 a barrel, assuming severe conflict-related supply disruptions.
In another development, Saudi Arabia, the world’s largest oil exporter, wants higher oil prices to fund its economic growth. The oil-dependent nation unveiled a plan known as Vision 2030, under which the economy is looking to diversify into non-oil activities such as tourism and industry.
If you are a football fan, you must have heard about Saudi Arabia hosting the FIFA Club World Cup 2023, and the country is now the only bidder for the 2034 Cup. The International Monetary Fund (IMF) forecasts Saudi Arabia will need oil at US$96.20 to balance its 2024 budget. All this points to one direction, that is high oil prices.
Suncor stock is trading above $53, a price it reached when the oil price peaked at US$125 a barrel in June 2022. How high can the stock go this time?
It would be fair to assume that investors are shifting to oil stocks like Suncor and Cenovus Energy (TSX: CVE), which surged 33% since February 14, to combat inflation. The oil stocks have already priced in the supply shocks. Yet, there is the possibility of more upside if the US Fed delays rate cuts beyond June.
Should you buy, hold, or sell?
Suncor is a cyclical stock. There is no point in buying Suncor stock at its high. However, if you own the stock, you might want to hold it till the end of the year, as 2024 is the year of oil price volatility. If you want to combat inflation and any volatility in energy and commodity prices, Barrick Gold (TSX: ABX) is a better option. Gold prices tend to rise in times of crisis. If geopolitical tensions escalate and create a supply shock, gold prices could surge as investors consider it a safe haven.
Even though the currency we use today is not backed by gold, inflation positively impacts gold prices. The yellow metal still has an exchange value worldwide. Alongside oil stocks, Barrick Gold’s stock price has surged as much as 29% since February 14.
