Canadian Natural Resources (TSX: CNQ) is down 35% in the past 12 months. Contrarian TSX investors are wondering if CNQ stock is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and long-term returns.
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Canadian Natural Resources stock price
CNRL trades near $36.50 at the time of writing compared to $56 last spring. The stock is down 17% in 2025, with a big plunge occurring in recent days.
Most of the pain in the past year is due to declining oil prices. In April 2024, West Texas Intermediate (WTI) oil traded above US$85 per barrel. At the time of writing, WTI trades below US$60 and recently slipped as low as US$55.
Weak demand from China and higher production from non-OPEC countries, including the United States and Canada, contributed to the decline through most of 2024. The latest slide is due to uncertainty around the brewing trade battles between the United States and a good chunk of the rest of the world. China, in particular, poses a big problem for the oil market if its already struggling economy slips into a deep recession due to a trade war with the United States. This would reduce oil demand in China, which is a major consumer of energy.
A recession in the United States and Europe would provide additional headwinds for the oil market. At the same time, OPEC recently announced a plan to increase oil supply, even as prices dip to levels not seen since the pandemic.
CNRL also upset some investors last fall when it announced a US$6.5 billion deal to buy assets from Chevron Canada. Management bumped up the dividend by 7% when the deal closed, citing the boost to revenue. Oil prices have since fallen materially, and CNRL borrowed a good chunk of money to settle the all-cash acquisition. The addition of the debt to the balance sheet will push out the timeline for returning more cash flow to shareholders. The trend in the oil patch in the past few years has been to focus on debt reduction and direct more excess cash to shareholders rather than using the funds to make big acquisitions or significantly expand production.
Risks
Additional weakness in the oil market is possible, at least over the short term, until there is more clarity on how U.S. tariff negotiations will pan out with China and other major trading partners. A deep economic downturn could drive WTI oil below US$50 per barrel, according to some analysts.
As we saw during the pandemic, shares of oil producers can move significantly to the downside on market shocks.
Opportunity
CNRL has a good track record of buying strategic assets at opportune times and reaping the rewards when market prices recover. The Chevron Canada deal could turn out to be another big win over the coming years. CNRL maintains a solid balance sheet and has the financial clout to do more deals while the market is under pressure.
The 2024 completion of the Trans Mountain expansion opened up more export capacity for Canadian oil producers. On the natural gas side, LNG Canada is on schedule to start shipping Canadian liquified natural gas to international buyers this year. Concerns about reliance on the United States could lead to new east-west pipelines in Canada that would give CNRL, which is both an oil and natural gas producer, access to even more global markets.
Time to buy CNQ?
Additional downside is certainly possible in the coming weeks and months, so I wouldn’t back up the truck just yet. That being said, energy bulls might want to start nibbling on CNQ stock at this level and look to add on any further weakness.
At the current share price, you get a 6.4% dividend yield. CNRL raised the dividend in each of the past 25 years, so the distribution should be safe.
