My Assessment on Canadian Oil and Energy Stocks in Short-to-Mid Term in mid-2022
I have a strong interest in Energy & Oil stocks, especially those traded in the TSX (including ETFs). Over the last 2 quarters this year, oil prices have decreased significantly which means stocks and ETFs have lost their values as well. Canadian oil stocks have also faced significant challenges in 2023, with the TSX Energy Index down 7% while the S&P 500 has been rising. I am happy that I have not lost much of my stock values as I traded them timely. However, I must admit that it was not smooth sailing for me either.
The primary reason behind decline in stock prices was (of course) the continuous downward trend in oil prices, which saw a high of US$ 123 in 2022 and then a low of US$ 67 in June 2023. At the time of writing this article, the oil traded at $73.4 (mid July, 2023).
The Uncertainty of Oil Price Recovery
Recovering oil prices seem uncertain in near future at least. There are several factors at play here. For example, Russia has given a huge crude oil rebates, including reselling to Western buyers (even to Gulf countries as well, who in many cases bought Russian oil for local consumption and traded their own crude for money — pretty clever).
Furthermore, the actions taken by central banks, such as the Bank of Canada’s to sinigincantly increase interest rates have hit hard as well. There is no sign that central banks of any major economy would bring down interest rates low any time soon.
Another major reason is linked to non-complaince of Russia with OPEC+ countries’ aim to reduce barrels-per-day production. For example, Saudi Arabia reduced output by one million barrels per day, but Russia’s non-compliance to do the same complicates the situation. With Russia, the United States, and other countries selling substantial quantities of crude, oil prices are expected to remain below the levels seen in the year 2022.
Investment Opportunities:
Given the oil prices are low, stocks for energy and oil secor have driven lower as well. While this is bad for investors who already hold significant amount of stocks under this umbrella domain, it is a good news for those who were aiming to buy stocks earlier.
While nothing can be said for the stocks or economy with certainity, however with caution, I woul say that current market conditions opens profitable investment opportunities. A potential entry point for purchasing Canadian oil stocks would be if oil prices drop below $60 per barrel, accompanied by a corresponding decline in stock prices. Historically, $65 has acted as a price floor, suggesting that sustained periods below this threshold may be short-lived.
For instance, Suncor Energy (TSX:SU) has experienced declining revenue, earnings, and profit margins in its most recent quarter due to falling oil prices. Note that Suncor Energy is the parent company for Petro Canada which was hit hard by cyber attack a couple of weeks ago. I was expecting that this would reduce the stock price significantly, but I haven’t seen any such drop that I can relate to the cyber attack. However, since even after 3 weeks Petro Canada is unable to bring many of their online services UP, it may have some impact in the coming days! Lets see.
While we are at it, I recently found an ETF CI First Asset Energy Gians Covered ETF (NXF.TO) that holds stocks for major global Oil & Gas giants (mostly Non-Canadians), like Shell, Exxon, TotalEnergies etc. It is a pretty near stock to have in portfolio. I do not have one in mine at the moment, because I want to see its performance a bit more before investing. However, if someone is lured by dividends, then this ETF is a jackpot with 12.95% yearly yield.
I’ll perhaps write more about this one later. For now, if you want to learn about stocks and ETFs, or would like to support me, do like and subscribe to my profile.
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Have a good one.