Hillcrest Energy Technologies. (CSE: HEAT)
From concept to commercialization, Hillcrest is investing in the development of energy solutions that will power a more sustainable and electrified future.
Year-to-date, the price of Canadian energy stock Suncor Energy Inc (TSX:SU) has surged 30%, significantly outperforming the Toronto Stock Exchange (TSX) Composite Index. As an oil exploration and production (E&P) company, Suncor’s stock price is directly correlated with oil prices. It’s important to note that oil stocks come with a leverage effect compared to oil prices, meaning that the price movements of the stock are amplified.
Specifically, oil prices have risen 9.6% year-to-date, but Suncor Energy’s stock price has increased nearly three times that amount. If you invested CAD 10,000 in this stock at the start of the year and held it until now, you would have gained CAD 3,000, and this amount excludes dividends, which currently have a yield of 3.91%.
Of course, this leverage effect of oil stocks compared to oil prices is a double-edged sword: while it amplifies returns, it also magnifies potential risks. If oil prices fall, Suncor Energy’s stock price could decline significantly. To determine whether this Canadian energy stock is overvalued and whether its price will continue to rise, we first need to understand the price trends of the company’s product—oil.
This year’s rise in oil prices is the result of multiple factors, with the primary driver being the continued increase in oil demand. While the global transition to green energy is an undeniable trend, and countries are heavily investing in renewable energy, this process is not instantaneous. Fossil fuels remain an indispensable energy source, and oil consumption and demand are still slowly increasing. Data supports this view: second-quarter oil consumption rose by 71,000 barrels per day.
Additionally, in recent years, OPEC’s production cuts have led to a decrease in oil supply. OPEC member countries and Russia began cutting production in 2022 and have largely continued this policy. However, some analysts believe that OPEC may change this policy in its next meeting, so the possibility of reversing the production cuts, a factor that has supported rising oil prices, cannot be ruled out.
The rise in oil prices has naturally boosted Suncor Energy’s performance. The company has not only increased its profits but also reduced its debt, indicating a decrease in future interest expenses, which will enhance company profitability.
Here are the company’s second-quarter earnings data:
With the expanded Trans Mountain Pipeline coming into operation earlier this year, Suncor Energy plans to further increase production, even showing growth before the pipeline became operational. The reported quarter’s average daily production was 771,000 barrels, with refinery throughput at 431,000 barrels per day. Additionally, the first half of the year saw a record average daily production of 803,000 barrels, while refinery throughput averaged 443,000 barrels per day.
Looking ahead, although we cannot predict oil price trends or guarantee that prices will continue to rise or remain strong, it is highly probable that oil prices will stay at levels that allow Suncor Energy to be consistently profitable. Meanwhile, the company is in good operational health, with positive results from debt reduction, laying a strong foundation for future stock performance.
