Canadian energy stocks have taken a hit, with some down more than 20% in recent months. Investors are left wondering whether it’s time to cut losses or take advantage of lower prices and add to their positions. Market downturns can be unsettling, but they also present opportunities for those willing to look beyond the short-term noise. So, let’s look into it.
What happened?
A major factor behind the recent drop is uncertainty surrounding potential U.S. tariffs on Canadian crude oil. Earlier this year, U.S. president Donald Trump proposed a 10% tariff on Canadian oil imports, aiming to protect domestic producers. This news sent shockwaves through the market, slowing activity in the sector.
Canadian oil and gas companies, particularly those involved in drilling and services, have felt the pressure as customers hesitate to commit to new projects. Precision Drilling (TSX:PD), Canada’s largest drilling rig operator, reported a steeper-than-expected slowdown in its Canadian well-servicing business in the fourth quarter of 2024, citing the impact of these uncertainties. Investors who were optimistic about the company’s recovery are now second-guessing their positions as market conditions shift.
Even the best not immune
Weaker oil prices have added to the challenges. Canadian Natural Resources (TSX:CNQ), one of the country’s largest oil producers, saw its net income fall to $1.14 billion in the fourth quarter of 2024, down from $2.63 billion the previous year. Even with strong production levels, lower prices have weighed on profitability.
The stock has seen increased volatility as investors digest the shifting market landscape. Energy stocks tend to be cyclical, meaning they rise and fall with oil prices and broader economic trends. When oil demand is strong, these stocks can perform well, but when uncertainty looms, selling pressure can be strong. The question investors need to ask is whether this decline is part of a longer-term trend or a temporary pullback.
What now?
When stocks drop, investors face two choices: sell to prevent further losses or double down in hopes of a rebound. Selling may seem like a safe option, especially with ongoing uncertainty in the energy sector. A prolonged period of weak oil prices or the implementation of tariffs could put additional pressure on Canadian energy companies, making it difficult for some to maintain profitability. Investors looking for more stability may prefer to reduce exposure.
If tariffs move forward, Canadian oil could become less attractive to U.S. buyers, forcing companies to sell at lower prices. That would add more financial strain to companies that already operate in a highly capital-intensive industry.
However, lower prices can present buying opportunities for those willing to wait for a market recovery. Some companies remain financially strong despite recent declines. Canadian Natural Resources has extensive reserves and diversified operations, which could help it weather the current environment. The company has a track record of managing costs effectively and maintaining production even during downturns. Investors who believe the global economy will remain strong may see the recent correction as a chance to buy into quality companies at a discount.
Foolish takeaway
Market downturns test investor patience but also create potential opportunities. Investors who see long-term value in Canadian energy companies may view this correction as a chance to buy at a discount. Those with a lower risk tolerance might prefer to move into more stable sectors. No one can predict the future of oil prices with certainty, but investors who focus on strong fundamentals and long-term potential may find that today’s volatility leads to tomorrow’s gains. In the end, the decision comes down to individual investment goals and risk tolerance.
