A pumpjack draws oil from a well head near Calgary in September, 2022. Low oil prices that weighed on producers earlier this year are unlikely to return anytime soon, writes David Berman.Jeff McIntosh/The Canadian Press
The United States and Iran have agreed to a ceasefire and crude oil might again move through the Strait of Hormuz, easing the greatest energy crisis in decades and potentially killing this year’s rally in Canadian energy stocks.
Uhh, hold on a minute.
A tentative deal with Iran this week initially kneecapped the price of crude oil and sent energy stocks down a notch. But investors might well anticipate a deeper selloff as a buying opportunity.
The reason: Low oil prices that weighed on producers earlier this year are unlikely to return anytime soon as the energy market remains on edge over oil’s vulnerability to new geopolitical realities.
“It’s difficult to know what the new medium-term price range will be, but I think US$70-US$85 is a reasonable estimate, as the market applies a higher supply risk premium and we also see demand tailwinds from necessary restocking of inventories,” Noah Barrett, a research analyst at Janus Henderson, said in an email this week.
Granted, that might not sound particularly bullish compared with recent levels.
After U.S. President Donald Trump threatened to annihilate Iran this week if it did not strike a deal by Tuesday evening, West Texas Intermediate – or WTI, the U.S. benchmark – approached a four-year high of US$113 a barrel, up from about $60 at the start of the year.
On Wednesday, the day after a ceasefire was announced, oil took a 15 per cent nosedive, to US$96 a barrel before recovering above US$98 on Thursday.
A further dip could hurt Canadian energy stocks, which have retreated a mere 5 per cent from their recent highs.
So why bother with a sector that is exposed to considerable downside risk if the supply of oil bounces back?
Full disclosure: I owned shares in energy giant Canadian Natural Resources Ltd. until days before the U.S. and Israel attacked Iran at the end of February, triggering the energy crisis.
I sold the shares because I thought that an attack was unlikely. Plus, the threats from Mr. Trump had already delivered sufficient gain for my low-greed approach to investing. I was okay – sort of – when I missed out on the next phase of the rally.
Now, though, there could be a higher floor for oil prices, which will give a new shine to Canadian energy stocks.
Yes, the ones that produce the oil that Mr. Trump said he had no use for; the ones that looked vulnerable to the president’s “drill, baby, drill” approach to U.S. domestic energy production.
And the ones that were tossed overboard by panicky investors in January after the U.S. grabbed control of Venezuelan oil production and promised to turn a global oil glut into something worse.
Canadian oil producers were always a low-risk source of supply compared to other parts of the world. Now these producers look even better as investors learn about the importance of the Strait of Hormuz and Iran’s considerable power over it.
“Canadian companies should benefit from the lasting physical and psychological impacts of the recent conflict. The value of long duration inventory from reliable producers will only increase after the past six weeks,” Mr. Barrett said.
Canadian oil producers are far more than just safe investments though. Consider, as well, how profitable these companies are even when oil prices are well below their current levels.
Canadian Natural Resources reported earnings of $7.4-billion in 2025, after adjusting for asset swaps, when the price of oil was just US$64.77 a barrel on average. Suncor Energy Inc. reported earnings of $5.9-billion in the same period.
Higher oil prices will drive profits higher and reward companies for producing more oil. Efficiency gains will help as well.
At its investor day presentation last month, Suncor announced plans to chip away at the costly process of mining oilsands bitumen. With improvements to roads and equipment, and the use of artificial intelligence, the company expects that its break-even cost of producing a barrel of oil will decline to US$38 on average, down from US$43 currently.
If Suncor can score a profit with WTI above US$38 a barrel, the price of oil can fall a lot further and still leave Canadian producers with substantial earnings – supporting dividends and share buybacks.
The price of oil will undoubtedly fall if the ceasefire between the U.S. and Iran holds, and Canadian energy stocks will follow. It could be a dip worth buying.