Canadian Natural Resources (TSX:CNQ) has been on a downward trend for the past year. Contrarian 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) focused on dividends and long-term total returns.
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Canadian Natural Resources share price
CNRL trades near $42 per share at the time of writing. The stock is down from $46 in June after a sharp bounce off the April crash that sent the stock as low as $35. It was as high as $55 at one point last year after a stellar run from under $10 during the worst days of the pandemic rout.
Weak oil prices are to blame for the extended downturn. West Texas Intermediate (WTI) oil trades near US$62 per barrel compared to US$90 two years ago.
Outlook for the oil market
Weak demand from China, the largest oil consumer, has combined with rising supply from non-OPEC producers to create surplus conditions. Canada and the United States, for example, are setting new production records while China is still struggling with its real estate crisis.
In recent months, oil prices have also reacted negatively to planned supply increases from OPEC, as the consortium seeks to regain some lost market share. Ongoing trade negotiations between the United States and major trade partners, including China, provide uncertainty on the demand side.
Tariffs threaten to push up inflation on consumer goods. Companies have largely avoided passing on the tariff costs, but that can only last for so long as inventories built up ahead of the tariffs continue to decline. Recent weak employment numbers suggest the U.S. economy could already be cooling off. That would be another headwind for oil prices.
Analysts widely expect oil to remain under pressure into 2026. Major geopolitical events can certainly send oil prices meaningfully higher, but the spikes tend to be short-lived as traders quickly refocus on the fundamentals.
Upside?
Commodity markets go through cycles. Saudi Arabia and other major producers need higher oil prices to support their cash flow needs. Oil demand is still rising, and could increase for longer than expected as countries walk back aggressive electric vehicle plans.
In Canada, CNRL could benefit from the country’s new push to reduce its reliance on the United States for its energy sales. New pipeline capacity to the three coasts would help Canadian oil producers. The construction of Liquefied natural gas (LNG) export facilities is already underway. This will enable Canadian natural gas producers to sell to global buyers. LNG Canada is now complete and in commercial operation. CNRL is best known as an oil company, but it also has significant natural gas production and reserves.
Canadian Natural Resources remains very profitable, even at current energy prices. The company has the financial clout to grow the business through strategic acquisitions during periods of weaker energy prices, and management is adept at moving capital around the asset portfolio to take advantage of the best opportunities in the market.
The board raised the dividend in each of the past 25 years. Investors who buy CNQ stock at the current level can get a yield of 5.6%.
The bottom line
Near-term pressure should be expected. In fact, it wouldn’t be a surprise to see a dip back below $40 at some point in the coming months if economic conditions weaken in the United States.
That being said, energy bulls might want to start nibbling while the stock is out of favour. You get paid well to ride out the turbulence, and a major market shock could potentially send the share price meaningfully higher in a very short period of time. As a buy-and-hold play, CNRL deserves to be on your radar.
