The current year hasn’t been great for oil prices. They experienced a climb in the first few months of the year, but since then, it has mostly been a downward slump. The current West Texas Intermediate (WTI) crude is about US$15 lower compared to its five-year peak. The U.S. Energy Information Administration has cut its original outlook for 2025 by US$6.5 per barrel. Even though the estimated price is higher than the current WTI price per barrel, it doesn’t look very promising.
Even more troubling is the forecast about lower oil demand. Geopolitical variables may also influence the price. Some can push the price down further, while others may push it well beyond the estimates.
A wild card variable is any breakthrough in battery technology or hydrogen, which makes zero-emission vehicles more financially feasible and practical — something like that can decimate oil demand, at least for a while.
With that in mind, it’s prudent to be careful with your choices for the energy stocks.
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A midstream stock
Enbridge (TSX: ENB) is not just Canada’s midstream giant but one of the largest pipeline companies in the world. It’s also rapidly growing its natural gas utility businesses, which further solidifies its overall business model. This makes its revenues quite stable and less vulnerable to price fluctuations than upstream or even downstream businesses. This, in turn, makes its dividends more financially stable and reliable.
The business model, dividend sustainability, and stellar dividend history (29 consecutive years of dividend growth) collectively make Enbridge one of the safest stocks you can buy in this oil price uncertainty environment. The 6.1% dividend yield is also a compelling reason to buy this stock.
While growth/capital appreciation potential isn’t a strong suit for this stock, it is quite bullish right now. It has grown 19% in the last six months. In contrast, the TSX Energy Index slipped about 5% over the same period. This further endorses Enbridge’s ability to remain resilient even when the rest of the sector is weak.
An upstream stock
Parex Resources (TSX: PXT) is currently one of the most heavily discounted energy stocks in Canada, which is surprising since most upstream stocks enjoyed a solid bull market phase while this stock slipped.
Even though it’s turning things around, it’s still trading at a 48% discount from its five-year peak. Despite a weak oil price outlook, this discount and its undervaluation are among the most compelling reasons to buy this stock.
Another reason is the incredibly high dividend yield. The company is currently paying dividends at a yield of about 10.3%, and the payout ratio of 44% is rock solid, making its dividends highly desirable. If the company starts recovering from its current fall, you might also get returns from its growth.
Foolish takeaway
The energy sector is going through a rough phase around the globe. Part of it is the worldwide switch to renewables. Geo-political factors like tensions involving major oil producers and importers and leadership changes can also exacerbate the situation. With this many concerning variables in the equation, stocks like Enbridge and Parex may be healthy picks for a wide range of investors.
