Suncor Energy (TSX:SU) is a Canadian energy company currently experiencing a minor correction in its stock price. After reaching a peak of $57.15 in August, the stock is currently trading at $49.92, representing a 12.6% decline from its highs. This correction meets the definition of a pullback of 10% or more.
Investors may be wondering if this pullback presents a buying opportunity or if the stock is rightfully experiencing a downturn. Despite the decline in oil prices throughout the year, it is important to note that oil prices are subject to fluctuation and may not remain low indefinitely. The transition to renewable energy sources is gradual, and the construction of nuclear power plants takes several years. Additionally, OPEC has been reducing oil supply, indicating a relatively stable oil market in the near future.
Regarding Suncor Energy specifically, the company’s operations are closely tied to the prices of oil and gas commodities. The crude oil sales segment of the business benefits the most from high oil prices, with revenue increasing by 21% in the most recent quarter. The gas station business, responsible for refining and selling gasoline, remains profitable even during periods of low oil prices. The refining and marketing segment also generates revenue, particularly when the spread between oil and refined product prices is high.
Taking all of this into consideration, Suncor Energy is positioned to potentially deliver positive returns if oil prices stabilize above $70. Given the expected stability in the oil market over the next five years, a modest investment in Suncor as part of a well-diversified portfolio may be a prudent decision.
