Low Energy Demand To Weigh On Chevron Stock In The Near Term

The shares of Chevron (NYSE: CVX) have gained 25% since Q3 2020, primarily supported by a recovery in oil prices and the extension of production curtailments by OPEC. The company’s full-year 2020 crude oil and natural gas production figures are likely to remain flat over the prior year, with a 30% (y-o-y) contraction in revenues and 30% lower capex. In its recent meeting, OPEC+ has extended production cuts to match low oil demand until the coronavirus pandemic recedes. Hence, Chevron stock is expected to continue facing headwinds from poor rig count figures, high crude oil inventory levels, a slump in travel demand, and worries associated with the new coronavirus strains. Trefis highlights the historical trends in revenues, earnings, and stock prices in an interactive dashboard analysis on Chevron Earnings Preview: How Did CVX Fare In 2020?

Q4 2020 revenues to drop by 20% (y-o-y)

After observing a steep 65% (y-o-y) decline during the second quarter, the company’s fourth-quarter revenues are expected to drop by just 20% (y-o-y) primarily supported by better production figures and benchmark prices. However, the $15 billion of depreciation charges are expected to be a drag on earnings and shareholder returns. Geographically, the U.S., Africa, Asia, and Australia contribute 36%, 14%, 23%, and 18% of the company’s total upstream production volumes, respectively. As production costs (per barrel) are 10-15% lower in the U.S. compared to other international regions, higher domestic production has been pushing revenues and earnings during the pandemic. On the other hand, international volumes have been negatively impacted by government-mandated cuts and demand uncertainty. Considering the 12% increase (for the first nine months) in the U.S. oil & gas production, the company’s 2020 volumes are likely to remain flat despite demand sluggishness and a weak macroeconomic outlook.

How has CVX stock fared in comparison to the S&P 500?

CVX stock declined from levels of around $110 in February 2020 (pre-crisis peak) to levels of around $54 in March 2020 (as the markets bottomed out), implying CVX stock lost 50% from its approximate pre-crisis peak. With the easing of restriction measures, the stock gained 65% to reach $90 and we believe that it has reached its near-term potential. In comparison, the S&P 500 Index first fell 34% as Covid-19 cases accelerated outside China and gained 72% after the Fed’s intervention coupled with Pfizer’s vaccine launch.

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