Suncor Vitality (TSX:SU) inventory surged to a excessive of $47.97 in early March earlier than the U.S. banking disaster pulled the complete market down. Whereas TSX financial institution shares fell 7–12%, oil shares fell much more as they’re buying and selling at an inflated worth. Suncor inventory nosedived 17.6% in mid-March because the WTI crude worth fell to as little as US$66.93 per barrel for the primary time because the pandemic. 

To carry oil to its high-profit glory, the Group of the Petroleum Exporting International locations (OPEC) decreased oil output, sending the WTI crude worth again to US$80/barrel. Regardless that the oil worth returned to the early March degree, Suncor inventory solely surged 12% to $44.30. How excessive may the inventory go in 2023? 

The correlation between oil shares and U.S. banks 

OPEC is chopping output to benefit from the windfall margins members get from exporting oil at US$80. However these excessive oil costs are placing stress on excessive energy-consuming nations as inflation eats up the buying energy of shoppers. 

The central banks are growing rates of interest to regulate inflation by decreasing the cash provide and demand. This rising rate of interest has put banks on liquidity and credit score threat alert. Banks are seeing a rise in loans and withdrawals. They’re tightening their controls as they worry many individuals would possibly default. 

In all this, the USA performs a task as most oil exports occur in US {dollars}. Excessive oil costs have been strengthening the greenback. Therefore, the collapse of three U.S. banks impacted oil shares greater than financial institution shares. The collapse of U.S. banks decreased oil demand.

Oil shares worth momentum in 2023

Final 12 months, when OPEC lower oil output, Suncor Vitality’s inventory worth surged to as excessive as $49. That’s the peak I don’t count on Suncor inventory to succeed in in 2023. A recession was not a risk in 2022, however it’s imminent in 2023. Final 12 months, shoppers have been spending even when rates of interest surged as they’d pandemic financial savings. The pent-up demand for journey was proof against inflation. 

However this 12 months, the situation is completely different. A 4.75% rate of interest and over 6% inflation have began to seep into shopper demand. Earlier than the 2008 market crash, OPEC lower oil output, and central banks hiked rates of interest to 4.5%, inverting the yield curve. All this dried out liquidity, popping the monetary bubble. Historical past is repeating itself. So, I’m bearish on Suncor Vitality inventory.

How excessive may Suncor Vitality inventory go in 2023?

I consider that Suncor Vitality inventory reached its peak of $47.97 on March 3. Within the best-case situation, the inventory would possibly surge to as excessive as $46 earlier than the recession bubble pops. The oil worth may surge if the USA refills its Strategic Petroleum Reserve (SPR), which it used to spice up the oil provide and ease oil costs in 2022. Nonetheless, America has put its refill plans on maintain and is working the SPR at its lowest degree since 1984. 

The worldwide vitality business is transitioning to renewable vitality, and plenty of oil firms consider that is the final of the oil peak. The oil business will stay unstable all through 2023 as OPEC tries to squeeze out each little bit of windfall revenue earlier than the demand falls. 

Suncor is at the moment within the upcycle earlier than a recession. Even in 2008, Suncor inventory peaked at $67.80 in Might 2008 earlier than the September 2008 crash pulled the inventory down 68% from its peak. The US might be ready for a recession to start refilling the SPR. If that’s the situation, even the refill received’t push oil shares to the present degree. 

What to do with Suncor inventory? 

I maintain reiterating, when you personal Suncor inventory, it’s time to promote. In case you promote it at or above $44, that could be a good worth for this cyclical inventory. As a result of as soon as the recession pulls down oil costs, Suncor inventory could not see the $44 worth once more.

In case you are ready for the inventory to succeed in the $50 worth, you would possibly lose the present income. Promote the shares and maintain the money to purchase some worth shares throughout the recession. BCE is an efficient inventory to speculate cash in and earn dividends throughout a recession.