Oil prices recently surged close to $100 per barrel. Why should an average Canadian care? While Canada produces and refines its own oil, being the fourth‑largest exporter globally, Canadians still pay the market rate. Whether you’re cooking, heating homes, or travelling, rising natural gas and oil prices affect daily life.
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Rising oil prices are a tax on Canadians
Oil and natural gas are deeply rooted in our lifestyles. Companies buy oil at market price, so when oil prices rise, households feel the impact through inflation. Transportation costs increase, goods become more expensive, and industries struggle with higher input costs. Meanwhile, oil companies enjoy surplus cash flow, highlighting the money trail: while consumers spend more, producers earn more,
If you follow the money trail and invest in the place where the money flow is heading, you could get a share of that money flow.
Rising oil prices are a boon for these stocks
Wars and geopolitical tensions keep oil prices volatile. As long as uncertainty persists, oil stocks remain attractive. It makes sense to hold on to oil stocks, as that is where the money is flowing. The next money flow will probably come in gold stocks when the oil price falls. This is because oil is the most traded commodity, gold is a globally accepted medium of exchange, and the dollar is tied to both.
Suncor Energy (TSX:SU) and Freehold Royalties (TSX:FRU) stocks are surging on the back of rising oil prices.
- Suncor directly receives the oil prices, as it earns revenue from the exploration, refining, and transmission of oil.
- Freehold doesn’t even pay for oil exploration. It pays for acquiring the land and earns royalties from land ownership, with cash flows tied directly to oil prices and production volumes.
Both their share price and dividends rise when oil prices rise.
Should you buy oil stocks at their peak?
Suncor stock has reached its all-time high of $85, tracking the surge in WTI oil prices. But buying at the peak can be risky. When oil prices rise to unaffordable levels, consumers cut back, alternatives gain traction, and sharp corrections follow. Historically, corrections occurred around $120–$125 per barrel, as seen during the 2022 Russia‑Ukraine war.
If you already own oil stocks like Suncor and Freehold, holding them till the oil price reaches US$120/barrel could be wise, but be prepared to book a profit because a sharp correction could follow soon. Corrections often create fresh entry points as the stock price will keep growing because of a shift in the global supply chain. With the existing suppliers in a state of war, countries will look to diversify their oil suppliers, paving the way for Canadian oil in Asia and new oil routes.
Oil prices and the gold connection
Generally, oil and gold have a positive correlation as they both act as inflation hedges. They tend to rise amid geopolitical uncertainties. However, the gold price has dipped more than 7% in March despite the Iran war, as markets absorb the energy shock. The gold price could rally again as new trade deals are signed and central banks resume gold purchases to rebuild the reserves depleted by high oil prices. Once again, follow the money trail.
One of the best TSX stocks to get exposure to gold price volatility is Lundin Gold (TSX:LUG). Its lowest all-in sustaining cost (AISC) compared to Canadian peers increases the stock price momentum. Lundin Gold’s stock price has fallen 18% in March so far, while the gold price fell 7%. In the last 12 months, the gold price has surged 54% while the Lundin Gold share price has surged 134%. This accelerated momentum is a reflection of Lundin’s reduction in debt and AISC.
