Cenovus Energy (TSX:CVE) fell as much as 8% January 5 before recovering part of the losses. The stock has been on a downward trend for nearly two months.
Investors who missed the rally in 2025 are wondering if the dip is a good opportunity to add CVE stock to a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Cenovus share price
Cenovus trades near $23 per share at the time of writing. It was as high as $26 in November and fell as low as $22 yesterday during the rout in the Canadian energy sector.
Investors dumped Canadian oilsands producers after the United States captured Venezuela’s president and brought him to New York to face narco-terrorism charges. The U.S. then announced plans to significantly boost Venezuela’s oil production in the coming years.
Venezuela’s oil is similar to the oil produced in Alberta. A surge in production from Venezuela could potentially replace oil sent to American refineries from Canadian producers. This is why Canadian energy stocks took a hit on the news.
The long-term risks are important to consider. Cheaper oil coming from Venezuela would potentially drive down the price Canadian producers receive from U.S. buyers. This would put pressure on margins and profits. The market reaction, however, is likely overdone.
Analysts say it will require an investment of as much as US$100 billion to get Venezuela’s oil production back to its historic peak. American oil companies would need to have guarantees that their investments will be protected against nationalization. This assumes that the country ends up being stable enough to make the investments in the first place, and that oil prices will be high enough to deliver the required returns.
There are a lot of unknowns that could derail the plan, or at least extend the timeline.
Is Cenovus stock a buy?
Cenovus recently won an intense bidding war to buy MEG Energy for $8.6 billion. The deal closed in November last year, immediately adding 110,000 barrels per day (bbls/d) of production and strategic oilsands reserves that are adjacent to existing Cenovus sites. The close proximity of the assets should result in meaningful synergies that enhance value in the coming years.
Investors might be concerned that the company paid too much for MEG in light of the new potential risks from increased production in Venezuela. Time will tell, but the MEG deal should be positive for investors over the long run.
Cenovus also has conventional and offshore oil production, as well as refineries. These assets provide cash flow diversification and should help offset the potential risks posed by the events in Venezuela.
Weak oil prices are likely more of a threat to the share price over the next year. Global oil supply is growing at a faster pace than demand. The current surplus conditions in the oil market are expected to continue for some time. This will be a headwind for oil prices until the market rebalances.
On the positive side, there could now be an extra push by the Canadian government to get a new oil pipeline built to connect producers to the coast. New export capacity enabling sales to international buyers would benefit Cenovus and its peers and could offset any risks from increased supply to the U.S. from Venezuela.
At the current share price, investors might consider taking a small position for a buy-and-hold portfolio and could look to add on any further weakness. Near-term volatility is expected, but the long-term outlook should be positive for CVE from this level.
