Source: Getty Images
Written by Christopher Liew, CFA at The Motley Fool Canada
TSX’s energy sector started strong in 2025, but momentum was interrupted by trade tensions and a Middle East war. Oil prices surged in June during the military operations launched by Israel and Iran against each other. As of this writing, energy (-0.19% year to date) is among the two primary sectors struggling the most.
However, the world oil supply has risen in the post-military conflict. On August 13, 2025, the International Energy Agency (IEA) reported that oil supply will rise more rapidly than anticipated this year. More crude was added to the market as the Organization of the Petroleum Exporting Countries (OPEC), Russia, and other allies decided to unwind their output cuts earlier than scheduled.
In IEA’s view, supply is rising far faster than demand. Due to data showing lacklustre demand across major economies, the agency stated, “Oil market balances look ever more bloated.” If oil prices continue to plummet or go ballistic, a pair of TSX energy stocks should be on your watchlist.
Baytex Energy (TSX:BTE) remains in negative territory, despite the solid operational and financial results in the second quarter (Q2) and the first half of 2025. The share price of $2.77 is absurdly cheap, although the year-to-date loss is nearly 24%. Its 3.25% dividend yield is the compensating factor for the stock’s weakness. The dividends should be safe, given the low payout ratio of 19.15%.
The $2.13 billion crude oil and natural gas producer operates in the Western Canadian Sedimentary Basin and in Eagle Ford in the United States. In the three- and six-month periods ending June 30, 2025, net income increased 45.9% and 146.1% year over year to $151.5 million and $221.1 million, respectively.
Its president and CEO, Eric T. Greager, said Baytex remains committed to disciplined capital allocation, prioritizing free cash flow (FCF) and strengthening the balance sheet. For 2025, management forecasts approximately $400 million in FCF. The plan is to allocate 100% of FCF to debt repayment after the quarterly dividend payments.
While an immediate price recovery is uncertain, market analysts’ 12-month average price target for BTE is $4, a potential 44.4% upside.
Attractive and sustainable returns from a world-class asset base are the compelling reasons to stay invested in ARC Resources (TSX:ARX). This large-cap stock ($15.7 billion market cap) is a pure-play Montney producer. Montney is the largest source of natural gas in Canada.
Story Continues