Chevron (NYSE:CVX) remains a speculative investment upon the recovery in oil prices, and while I’m somewhat bullish on oil fundamentals, there’s still enough incremental capacity regarding wells with spuds so that if the prices were to recover, the amount of supply would likely match the demand in North America. Furthermore, there have been issues on the geopolitical front as Saudi Arabia fired its oil minister, and it’s not yet clear if it was in response to the minister being unable to ink a deal at the Doha Convention, or if it was because the minister was unable to secure a deal with Iran. Moreover, if Iran doesn’t agree to production cuts, it’s dubious as to whether Saudis will jump on board either. That being the case, the recent strength in oil prices is due to certain OPEC members cutting production, and falling production in North America across unconventional resources.
There are also promising seasonal trends in demand, and resurgence in demand for larger vehicles, which could sway consumption growth estimates in CY’16 for oil resources. As such, the mix of positives/negatives is what’s keeping crude below $50/bbl, and unless the middle east cuts production (like in prior cycles), a sustained recovery to $60-$70/bbl is dubious/unlikely.
It’s unlikely that Chevron is your best play on oil, and here’s why:
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