As a result of the confounding foreign policy of our neighbouring country south of the border, it has finally happened. Crude oil prices are now hovering around the US$100 per barrel mark. Since the US and Israel attacked Iran earlier this year, the Strait of Hormuz has been shut down. This critical chokepoint is where around a fifth of all crude oil passes through.
With Middle Eastern oil unable to cross through the Strait, global energy prices are in a state of disarray. While alarming overall, the development has made one significant change that Canadian investors can leverage: Canadian energy products are in vogue, and the stock of energy producers is seeing the impact through massive upticks.
Due to the war, there is substantial damage to energy infrastructure in the Middle East. Supposing that the fragile ceasefire holds, and due to some miracle, the conflict ends today and the Strait is opened, it can still take months for global energy markets to recover.
Even if oil prices come down, many experts believe that US$80 per barrel might be the new normal for the industry for a while. While that is bad for the everyday consumer going to the gas station, Canadian energy stocks and investors can benefit from this.
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Integrated Canadian energy stock
If you are bullish on Canadian energy stocks, it might be a good idea to invest in one that can leverage changing energy prices to its advantage. This is where an integrated energy company like Cenovus Energy Inc. (TSX: CVE) can be a good candidate to consider. The $72.9 billion market-cap company headquartered in Calgary is the country’s largest integrated energy company, thanks in part to its recent acquisition of MEG Energy.
Its integrated business model means that Cenovus is involved in all parts of the oil and gas market, from upstream extraction operations to midstream refining operations and downstream energy product sales. When crude prices are higher, the extraction segment enjoys greater profits. When energy prices go down, it enjoys better margins through its midstream and downstream operations.
Cenovus produces roughly 972,000 Barrels of Oil Equivalent (BOE) per day, refining around 460,000 BOE per day while it is at it. After years of its refining operations becoming a financial burden, its refineries now operate at full capacity and enjoy immense margins due to lower operating costs and higher oil and gas prices.
The company boasts one of the lowest-cost production operations among its peers, one of the many factors that let it fund dividend payments and growth for years. As of this writing, Cenovus Energy stock trades for $38.84 per share and pays investors $0.22 per share each quarter, translating to a 2.3% dividend yield.
Foolish takeaway
Cenovus Energy stock is by no means a cheap bargain on the stock market. Despite the recent pullback in share prices, the stock is up by almost 300% in the last five years, leading its dividend yield to become deflated. However, the company has expanded its asset base and improved its overall business. The integrated oil and gas major has attractive growth prospects that can result in significant returns for its investors. CVE stock can be a good holding to consider if you are bullish on energy.
