Imperial Oil Limited (IMO Quick QuoteIMO - Free Report) has delivered a solid 20.4% jump in its stock price over the past six months, handily outperforming the broader oil and energy sector, which declined 2.2% over the same period. The company has also posted stronger gains than its peers in Canada’s Oil and Gas Exploration and Production sub-industry — Gibson Energy Inc. (GBNXF Quick QuoteGBNXF - Free Report) advanced 11.4%, while Cenovus Energy Inc. (CVE Quick QuoteCVE - Free Report) and Canadian Natural Resources Limited (CNQ Quick QuoteCNQ - Free Report) declined 1.6% and 0.6%, respectively. Such performance inevitably raises the question: Should investors step in now, or wait for a potentially better buying opportunity?

Six-Month Price Performance at a Glance

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To put this rally in perspective, it helps to examine the factors supporting Imperial’s upward trajectory. Based in Calgary, the company is more than just a leading name in Canadian oil — it operates across the full value chain, including upstream exploration and production, downstream refining and marketing, and chemical manufacturing. As the country’s largest jet fuel supplier and a major asphalt producer, Imperial enjoys a dominant market position. IMO’s close relationship with ExxonMobil, which owns 69.6%, further strengthens its access to global resources, advanced technologies and operational expertise. In essence, Imperial generates revenues by extracting oil and gas, refining these into fuels such as gasoline and diesel, and then distributing them to a wide customer base.

The question is now: What has fueled this recent strength and can the company sustain it in the months ahead? Let us break down the main drivers behind its performance and assess the outlook.

Primary Drivers Strengthening Imperial’s Competitive Edge

Industry-Leading Shareholder Returns: Imperial has a long-standing commitment to returning surplus cash to shareholders. In the second quarter of 2025, the company returned C$367 million through dividends and announced plans to accelerate its share repurchase program under the Normal Course Issuer Bid, targeting completion by year-end. Since 2020, Imperial has returned C$20 billion to its shareholders, with C$15 billion from share buybacks. This aggressive capital return strategy enhances shareholder value and demonstrates confidence in the company’s future cash flow generation.

Record Upstream Production: Imperial achieved its highest second-quarter upstream production over 30 years, averaging 427,000 oil-equivalent barrels per day. Kearl, its flagship asset, set a second-quarter record with gross production of 275,000 barrels per day, driven by improved reliability and mine productivity. This strong production performance positions the company for a robust second half of 2025, with further growth expected from ongoing projects like the Leming SAGD redevelopment at Cold Lake.

Strategic Growth Projects: The company successfully completed construction and commissioning of Canada’s largest renewable diesel facility at the Strathcona refinery, with first production achieved in July 2025. This aligns with Imperial’s long-term lower-emission energy strategy, similar to Cenovus Energy’s carbon-reduction projects and Canadian Natural’s solvent-assisted SAGD initiatives. While Gibson Energy focuses more on infrastructure expansion, Imperial’s renewable diesel milestone adds diversification and long-term earnings potential. Additionally, the Leming SAGD project at Cold Lake is on track for first oil in late 2025, further diversifying the company’s production portfolio.

Advantageous Logistics and Market Access: The Trans Mountain pipeline expansion has enabled Imperial to increase petroleum product sales, which averaged 480,000 barrels per day in the second quarter of 2025, up from 470,000 barrels in the prior year. This improved market access enhances the company’s ability to capture higher margins and optimize supply-chain efficiency.

Strong Balance Sheet and Low Debt: Imperial maintains a strong balance sheet with total debt of C$4 billion and shareholders’ equity of C$25 billion as of June 30, 2025. The company’s disciplined capital structure and low leverage provide financial flexibility to navigate market uncertainties and invest in growth opportunities.

Potential Challenges for IMO to Monitor

Dependence on ExxonMobil: ExxonMobil owns approximately 69.6% of Imperial and participates in share buybacks to maintain its ownership level. This heavy reliance on a single majority shareholder could limit strategic flexibility — unlike Canadian Natural, Cenovus Energy and Gibson Energy, which have more diversified shareholder bases and greater autonomy in capital allocation.

Lower Chemical Segment Earnings: The chemicals segment reported net income of C$21 million in the second quarter of 2025, down from C$65 million in the prior year, due to weaker polyethylene margins. This decline reflects cyclical challenges in the petrochemical industry, which could persist and weigh on overall earnings.

Regulatory and Trade Risks: The global trade environment remains volatile, with potential tariffs and export restrictions impacting Imperial’s operations. The company noted uncertainties around U.S. and Canadian trade policies, which could disrupt supply chains and margins. Regulatory risks, particularly related to climate policies, also pose long-term challenges.

Exposure to Commodity Price Volatility: The company’s upstream earnings are heavily influenced by crude oil prices, which decreased in the second quarter of 2025. West Texas Intermediate averaged $63.69 per barrel, down from $80.63 in the prior year. This volatility poses risks to revenues and profitability, particularly if prices remain subdued. While Canadian Natural and Cenovus Energy also face this risk, their integrated portfolios and scale offer partial insulation. Gibson Energy, with its fee-based midstream model, is comparatively less impacted by oil price swings.

Declining Net Income Year Over Year: Imperial’s net income for the second quarter of 2025 was C$949 million, down from C$1 billion in the same period last year. This decline was primarily caused by lower upstream realizations due to weaker commodity prices, highlighting the company’s sensitivity to oil price volatility. Investors concerned about fluctuating earnings may find this a deterrent.

Final Verdict for IMO Stock

Backed by robust shareholder returns, record-breaking upstream production and major growth initiatives like Canada’s largest renewable diesel facility, Imperial has solid fundamentals for long-term value creation. Improved market access through the Trans Mountain pipeline expansion and a strong balance sheet with minimal debt provide additional financial strength.

Yet, the company’s reliance on ExxonMobil for majority ownership could limit strategic flexibility, while weakness in its chemicals segment reflects softer polyethylene margins. Regulatory, trade and commodity price volatility also remain risks, with lower oil prices recently weighing on earnings.

Considering the balance between these positives and the headwinds, it may be prudent for investors to hold off and await a more favorable entry point before adding this Zacks Rank #3 (Hold) stock to their portfolios. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.