Suncor Energy: Should You Buy the Dip?

Suncor Energy (TSX:SU) saw its share price drop on concerns that Canadian oil sands producers are at risk of losing market share in the United States to oil produced in Venezuela in the coming years.

Contrarian investors who missed the rally in SU stock in 2024 are wondering if this is a good opportunity to start a position in a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.

Suncor trades near $59 at the time of writing, compared to more than $62 at the end of last week.

The drop is due to the surprise move by the United States over the weekend to capture the president of Venezuela and take him to the United States to face narco-terrorism charges. The U.S. now intends to focus on helping Venezuela substantially increase its oil production in the coming years. Venezuelan oil is similar to the oil produced by oil sands companies in Canada. The concern among investors is that cheaper oil from Venezuela will eventually replace shipments from Canadian producers to American refineries.

Analysts say the investment required to revive Venezuela’s production could be as high as US$100 billion and would take years to achieve. This is assuming that oil companies are willing to take the risk, especially in an environment where oil prices are low and global supply is already outstripping demand. In addition, there would need to be political stability and guarantees that the country won’t nationalize the assets once the investments by the foreign oil companies are complete.

As such, the reaction to the news is likely overdone. Any negative impact on Canadian oil sands producers will take years to materialize. The news could, however, put more pressure on Canada to build new oil pipeline infrastructure to enable Canadian producers to ship oil to international buyers as a way to offset dependence on the United States.

Should you buy Suncor now?

Suncor has done a good job of improving its efficiency and boosting production over the past two years. This is one reason the stock has performed well, even as oil prices have declined. Suncor is best known for its oilsands production, but the company also owns four large refineries as well as retail service locations operating under the Petro-Canada brand.

The downstream businesses help insulate Suncor from movements in oil prices. This is why the stock has held up better on the Venezuela news compared to some of its oil sands peers.

Weak oil prices could continue through 2026 due to a supply glut. This will likely be a headwind for energy stocks. That being said, Suncor continues to increase production while reducing costs. Low oil prices normally translate into cheaper gasoline prices, which should benefit the retail division. A slowdown in the transition to electric vehicles should also be positive for the overall business.

If you are considering adding an energy company to your portfolio, Suncor probably deserves to be on your radar at this price. The current dividend yield is close to 4%.

The post Suncor Energy: Should You Buy the Dip? appeared first on The Motley Fool Canada.

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The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.