As the U.S. presidential election approaches, Chevron Corp. (CVX) CEO Mike Wirth emphasized in a CNBC interview with Jim Cramer the importance of a stable and consistent energy policy for both the company and the overall economy.
Wirth emphasized that energy prices impact every aspect of the economy, as the cost of energy is embedded in nearly all products and services.
Disruptions in energy supply, he warned, could trigger widespread inflation. As the world shifts towards more sustainable energy solutions, Chevron is focused on balancing traditional energy sources, such as oil and natural gas, with renewable options like wind and solar.
This strategy not only drives Chevron’s continued growth but also mirrors the industry’s transition toward cleaner energy. Wirth further stressed that the upcoming election could significantly impact Chevron’s future operations, which are closely tied to government policies.
He emphasized that affordable, reliable energy controls inflation and ensures stability, while consistent policies attract long-term energy investments.
Affordable and reliable energy is essential to keeping inflation at a level that economies can handle — and that’s why we need investments, and we need stable policy to encourage that investment.”
Chevron CEO ,Mike Wirth
With global markets looking to the U.S. for leadership in energy commitments, Chevron’s focus on securing stable policies underscores its critical role in maintaining global supply chains.
Even as electric vehicles (EVs) become more popular, Chevron continues to play a crucial role by supplying oil for petrochemicals used in EV manufacturing, which underscores its ongoing relevance in the evolving energy market.
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Chevron Faces Market Pressures as Oil Prices Drop and Global Demand Slows
Despite its strategic positioning, Chevron is not immune to the effects of market forces. The global slowdown in demand, combined with high U.S. oil production, has placed significant downward pressure on oil prices in 2024.
Many oil and gas stocks, including Chevron, have underperformed, with the SPDR Oil & Gas Exploration and Production ETF falling 1% since the start of the year, and Chevron’s stock down 10%.
This has led investors to reevaluate whether now is the right time to invest in the company. Chevron’s integrated business model allows it to navigate the volatility in the energy market more effectively.
As one of the largest upstream operators, Chevron heavily explores crude oil and natural gas, making it vulnerable to fluctuations in oil prices.
To counterbalance this risk, the company also operates downstream businesses that refine crude oil into fuels and petrochemicals, and transport these products through pipelines and gas stations worldwide.
While not entirely immune to oil price changes, Chevron’s diversified operations help smooth out earnings and have enabled the company to raise its dividend payout for 37 consecutive years.
Several factors have driven the decline in oil prices, from a high of $123 per barrel after Russia’s invasion of Ukraine in 2022 to around $71 per barrel.
Lower demand from China, whose refinery output has dropped for six consecutive months, and record U.S. crude production of 13.5 million barrels per day in October 2024 have contributed to the price slump.
Forecasts from OPEC and the International Energy Agency predict a surplus in oil supply by 2025, further pressuring prices.
Keep Chevron on Your Radar: Dividend Shines Despite Falling Net Income
Despite the current challenges, Chevron remains a strong long-term investment, offering a 4.3% annual dividend.
However, declining oil prices and stagnant revenue have caused the company’s net income to fall by 21% in the first half of 2024.
With continued pressure from high U.S. production and weakening global demand, Chevron’s earnings may remain under strain in the near future.
Investors should consider holding the stock for now as they await further developments in government policy and market conditions.
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