The vitality sector is transferring greater after the current pullback and extra positive factors needs to be on the best way heading into 2022.
Oil market outlook for 2022
Brent crude not too long ago hit US$80 per barrel, whereas West Texas Intermediate (WTI) is buying and selling close to US$75. These are very worthwhile costs for oil producers and the market is simply beginning to determine that lots of the Canadian vitality corporations nonetheless commerce at very low cost costs. Oil has greater than doubled its value from October final 12 months. As demand will increase, there’s a chance that provide will increase won’t be able to maintain as much as keep a balanced market.
Many of the 2020 extra reserves have already been drawn down. Throughout the trade, main producers slashed capital investments by tens of billions of {dollars} final 12 months to guard money positions. Pressures for assembly local weather objectives and ESG targets will probably imply that only a few new large-scale manufacturing services will get constructed within the subsequent few years.
On the similar time, gas demand might surge far past expectations as air journey rebounds and thousands and thousands of commuters resolve to drive to work as a substitute of taking crammed public transit.
Oil bulls are calling for a spike to US$100 per barrel within the subsequent two or three years. Some bets are even being positioned on oil hitting US$200 per barrel. At that value, the financial restoration would probably grind to a halt and drive down oil demand, however even a gradual climb to US$90 per barrel over the following few years would imply a money move windfall for oil producers and their traders.
At present costs, oil corporations are already producing stable earnings and that ought to translate into greater dividends in 2022 and past. Let’s check out one Canadian oil and fuel large that deserves to be in your radar proper now.
Canadian Pure Assets
Canadian Pure Assets (TSX:CNQ)(NYSE:CNQ) is a superb vitality inventory to personal if you wish to get publicity to the total hydrocarbon market. CNRL operates oil sands, typical heavy oil, typical gentle oil, offshore oil, pure fuel, and pure fuel liquids manufacturing services. The corporate owns an unlimited untapped land base with intensive assets and tends to personal its property 100% somewhat than accomplice with different corporations. This technique will increase dangers, but it surely additionally provides CNRL the pliability to rapidly shift capital across the portfolio to benefit from worthwhile strikes in vitality costs.
The pure fuel enterprise is just not as well-known to traders, however it’s a large a part of CNRL’s income stream and offers a very good stability when oil costs hit a tough patch. This was the case final 12 months when the value of oil tanked. CNRL maintained its dividend in 2020 when different corporations lower payouts after which raised the distribution by 11% in 2021. The present payout offers a 4% yield.
The corporate is on monitor to generate greater than $7 billion in free money move (FCF) in 2021. If oil and fuel costs keep their present ranges, the FCF quantity can be even greater subsequent 12 months. CNRL is utilizing extra money to scale back debt and purchase again shares. Traders ought to see one other large dividend hike in 2022.
The underside line
CNRL has loved a pleasant rally off the 2020 lows, however nonetheless seems low cost when you think about the truth that pure fuel is buying and selling at a seven-year excessive, and oil seems like it would maintain or lengthen the 2021 positive factors by way of subsequent 12 months. In case you are an vitality bull, CNQ inventory deserves to be in your purchase checklist.
This text represents the opinion of the author, who could disagree with the “official” advice place of a Motley Idiot premium service or advisor. We’re Motley! Questioning an investing thesis — even one in all our personal — helps us all assume critically about investing and make choices that assist us grow to be smarter, happier, and richer, so we typically publish articles that is probably not consistent with suggestions, rankings or different content material.
The Motley Idiot has no place in any of the shares talked about. Idiot contributor Andrew Walker owns shares of Canadian Pure Assets.
