Shares in integrated major energy company Chevron (CVX 5.48%) declined by 4.6% to 11:30 a.m. The stock fell as the price of oil dipped by a couple of percentage points to below $100 a barrel. That was enough to encourage selling from investors buying into stocks like Chevron and other highly liquid energy stocks as a way to play rising energy prices.
Are investors overreacting?
The move downward in oil is likely a reaction to President Trump’s allusion to a conclusion to U.S. attacks on Iran in the next couple of weeks. But here’s the thing. The Strait of Hormuz is still almost entirely closed to commercial energy traffic; it’s not clear how long it will take to repair the damage to energy infrastructure in the region, and there’s no guarantee Iran will reopen the Strait under normalized conditions even if the U.S. stops attacking Iran.
Image source: Getty Images.
In short, there are many imponderables here, but what we know with certainty is that the Strait remains almost entirely closed, and until energy traffic through it is normalized, then there will be challenges in the world replacing the energy (34% of global crude oil trade and 20% of global liquefied natural gas, or LNG, trade ) previously flowing through it. We also know that Chevron is one of the 10 great stocks to buy as long as the Strait remains closed.
In other words, until the Strait is reopened, investors can expect a higher-for-longer oil price.
Today’s Change
(-5.48%) $-11.34
Current Price
$195.56
Key Data Points
Market Cap
$413B
Day’s Range
$195.49 – $204.64
52wk Range
$132.04 – $214.71
Volume
745K
Avg Vol
13M
Gross Margin
14.66%
Dividend Yield
3.34%
What it means to Chevron
As an integrated energy major, Chevron not only benefits from a higher price of oil, but also from an increased crack spread (the difference between the price of refined petroleum products and a barrel of crude oil), and in the current environment (where neither crude nor refined products are passing through the Strait) it’s a favorable position to be in. Consequently, investing in Chevron remains a great way to protect against ongoing turmoil in the Persian Gulf.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.
