Written By
Nick Raffoul
Nick Raffoul is the Founder and Lead Analyst at Best Canadian Stocks. He graduated with a degree in Business Administration, has over a decade of writing experience, and grew his personal portfolio 153% from 2020 to 2024.
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Oil prices climbed near one-month highs this week as escalating tensions in the Middle East raised fresh concerns about global energy supply. Yet even as crude strengthened, Canadian energy stocks remained relatively stable during Thursday’s trading session — a disconnect that highlights the complex forces investors are weighing right now.
What Happened: Oil Prices Firm on Middle East Supply Risk
Brent crude traded near US$84 per barrel and West Texas Intermediate near US$79 on Thursday July 16, both close to their highest levels in a month, according to data as of July 16, 2026. The move higher came after the US military struck Iranian coastal defenses on Wednesday and reinstated a naval blockade. Iran responded by threatening to disrupt regional energy exports.
The threat is not purely rhetorical. Tanker traffic through the Strait of Hormuz — a critical chokepoint for global oil flows — fell sharply midweek, with no supertankers or LNG tankers transiting on Wednesday. According to reports, Brent crude was on track for a double-digit weekly gain.
Oil prices rose during Thursday’s TSX session on these Middle East supply concerns, adding to inflation worries even as Canadian stocks pulled back from Wednesday’s record close — the TSX Composite fell 0.2% to 35,340.15, with the session’s weakness coming from materials and gold miners, not the energy sector.
The Disconnect: Why Canadian Energy Stocks Stayed Flat
Here is where it gets interesting. Despite oil trading near one-month highs, Canadian energy stocks were roughly flat during Thursday’s pullback. Large-cap Canadian producers such as Canadian Natural Resources, Suncor, and Cenovus are all highly sensitive to crude prices — when oil climbs, their cash flows typically expand. So why the muted response?
Markets may have already priced in supply risk earlier this month. When oil surged on strikes involving Iran in early July, Canadian energy names moved sharply higher. This week’s oil strength could be viewed as an extension of that move rather than a new catalyst.
Inflation and Federal Reserve concerns also cut both ways. Higher oil prices raise input costs across the economy, which could push the US Federal Reserve to keep rates higher for longer. That tightens financial conditions and weighs on equity valuations — even for energy producers whose earnings benefit from higher crude.
There is also the demand side. If oil prices stay elevated for too long, demand destruction becomes a risk. Consumers and businesses adjust behavior, substituting away from energy-intensive activities or delaying purchases. That dampens the bullish case for crude over the medium term.
What It Means for Canadian Investors
If you hold Canadian energy stocks — or are considering adding exposure — there are a few key points to weigh.
First, producer cash flows are highly sensitive to oil price moves. A sustained increase in Brent or WTI translates directly into stronger operating margins for companies like Canadian Natural Resources, Suncor, and Cenovus. If oil holds near current levels or moves higher, free cash flow generation would likely strengthen.
Second, volatility cuts both ways. Crude prices can reverse quickly if geopolitical tensions de-escalate. A diplomatic resolution between the US and Iran, or a reopening of Strait of Hormuz traffic, could send oil prices lower just as fast as they climbed. Energy investors need to be comfortable with that volatility.
Third, inflation and interest rate fears remain a headwind. Higher oil prices feed into broader inflation concerns, which keeps central banks on alert. The Bank of Canada held its policy rate at 2.25% on July 15, but prolonged energy-driven inflation could limit the Bank’s flexibility going forward.
Fourth, this is not a one-way bet. Energy stocks can deliver strong returns when commodity prices cooperate, but they can also underperform sharply when crude weakens or when macro conditions turn negative. Diversification matters.
For Canadian investors looking to build or rebalance their portfolios, energy stocks remain a meaningful part of the TSX stock universe and the energy sector specifically. Whether this week’s oil strength translates into sustained gains for producers depends on how long Middle East tensions persist — and whether demand holds up in the face of higher prices.
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Written By
Nick Raffoul
Nick Raffoul is the Founder and Lead Analyst at Best Canadian Stocks. He holds a degree in Business Administration and has over a decade of writing experience. Nick began investing just before the COVID-19 market crash in March 2020, growing his personal portfolio 153% by 2024. In 2022, he founded Best Canadian Stocks to make data-driven investing accessible to all Canadians. His goal is to help all of his readers achieve financial freedom, maximize their spending power, and reach their financial goals. Whether you're maximizing your TFSA, building an RRSP to save for retirement, or looking to buy your first stock, Nick has your back. His work covers Canadian equities, dividend investing, tax-advantaged accounts, and personal finance.
