Should You Buy Chevron to Play the Crude Oil Recovery?CVX) has not reported a profit on an annual basis, the stock has still performed pretty well over the last twelve months. In fact, Chevron is up over 30% in the last 12 months and may even offer more upside going forward.
In the most recent quarter, Chevron reported earnings per share of $-0.78, $1.10 less than the estimates. On the other hand, Chevron’s revenue came in at $29.30 billion, $1.22 billion more than the estimates. Despite beating revenue estimates, revenues were still down 27.4 percent year over year.
The company has faced many problems in the past few years mainly due to the drop in oil prices, as it is betrothed in every phase of the oil, natural gas, as well as geothermal industries.
As a matter of fact, Brent crude prices have managed to sustain at $45 per barrel, and this clearly suggests that the company will observe additional enhancements in the upstream oil price realizations in the prevailing quarter.
The increment in oil prices is primarily due to the surge in demand and lower production, which have worked in cycle to reduce the oversupply in the oil market to some point.
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Most significantly, the growth rate in crude oil inventories in 2016 has decelerated to just 0.8 million barrels a day, which shows an enormous enhancement over inventory growth of 1.9 million barrels a day in 2015. Not only this, it is highly likely that the inventory growth will drop additionally to just 0.2 million barrels a day next year.
Furthermore, oil price is projected to grow further as many analysts expect a $50 environment for crude by the end of this year and $60 per barrel next year. Apart from this, the United States Energy Information Agency unquestionably agrees, projecting WTI prices to reach $60 by the end of next year.
Considering the projected progressive increment in crude prices next year, the company’s upstream business will be a huge beneficiary. The downside at current levels is pretty limited as crude oil prices have bottomed and will likely crawl higher in the long-term.
As a result, investors looking to benefit from this recovery should consider adding Chevron to their portfolios.
Published on Sep 23, 2016By Prudent Investor